As if Europe did not have enough problems, French president Sarkozy intends to raise the level of animosity with his insistence on introduction of the so-called Tobin tax. Its objective is to tax financial transaction within EU. Needless to say, not everybody is thrilled with this prospect and while France claims to have support of Germany, that is not enough to introduce a new EU-wide tax. Even the recent coercion of Italy’s Monti to come onboard does not guarantee passage. UK and Sweden are opposed to this idea and can veto it. Timing of this proposal also raises eyebrows. New taxes do not increase growth and competitiveness, something that Europe needs more now. In addition, this new bone of contention cannot possibly unify EU members in a fight with the debt crisis.

Chances are that the summit in Brussels on January 30 will not produce agreement on this issue. In such case, Mr. Sarkozy will try to impose the Tobin tax unilaterally before the April presidential election in France. French business was quick to distance itself from the idea. Paris Europlace, a financial markets association, warned that unilateral application of this tax would drive banking, insurance and asset management business out of Paris, and benefit of other large financial centers. It could even hurt Sarkozy’s reelection bid. Ultimately, though, it will further sour European unity at a time when it is most needed.

The USD showed strong gains on Friday, especially against the Canadian Dollar, which fell of confusing employment numbers. While the Net Change in Employment improved with 17.5K new jobs, even higher than the projected 15 K, the Unemployment Rate somehow increased during this time to 7.5% from 7.4%. How is it possible? Beats me, but the USD-CAD had a nice rally and closed at 1.0283 just shy of the daily high. This, it turn, sets up a short-term reversal trade, a sell in this case. I want to see a bearish reversal candlestick pattern on hourly chart, looking for a 40 pips correction.

After a bullish spike on the first trading day of the year, the Euro fell for the rest of the week. Fundamentally, there are few, if any reasons to by the common currency, but it could be getting oversold for now. Such is the case in the EUR-NZD. At 1.6287, the price is approaching the previous low of 1.6201, creating a possible MACD divergence on the weekly chart. It is a chart to watch for me, in case the divergence actually develops. That would be confirmed by a strong bullish reversal pattern. Because this is a weekly chart, we have to wait at least a week for the next candle to form, maybe even longer. If it does, the price could easily recover to 1.70 or so.

Mike K.