The euro rallied in early deals on Friday as European stocks traded notably higher, braced by German Chancellor Angela Merkel's comments that European nations are working toward setting up a fiscal union with rigorous budgetary oversight to resolve the Eurozone's debt crisis.

Merkel said before the parliament that the eurozone nations must urgently come together to restore confidence in the market. While raising her continuous objection about the common eurobonds, the German leader stressed the "need to change the treaties or create new treaties," bringing in budget discipline and effective crisis management mechanism.

In a major speech in the Southern French port city of Toulon, French President Nicolas Sarkozy said Thursday that France and Germany must come together to ensure stability at the heart of Europe. The meeting would come just ahead of a summit of European leaders in Brussels on December 9, where possible changes to the EU treaties will be on the agenda.

While admitting that the sovereign debt crisis is the biggest challenge that Europe has ever experienced, Sarkozy said he will meet German Chancellor Angela Merkel next Monday in Paris and make proposals to guarantee Europe's future.

Meanwhile, Sarkozy meets Britain's Prime Minister David Cameron today to discuss measures that will help contain Europe's mounting debt crisis.

Thus far, the U.K. FTSE 100 index advanced 1.47 percent, Germany's DAX jumped 1.4 percent and France's CAC-40 index rose to 1.70 percent.

Data released in the region was not so encouraging, with the producer price inflation in the euro area easing more than economists expected in October.

According to the report released by statistical office Eurostat showed that the producer price inflation, excluding construction, eased to 5.5 percent in October from 5.8 percent in September. Economists expected a growth rate of 5.6 percent for October.

On a monthly basis, producer prices edged up 0.1 percent in October, slower than the previous month's 0.3 percent rise. Economists were looking for a 0.2 percent growth.

Extending its 2-day winning streak, the euro advanced to a 1-week high of 1.2376 against the Swiss franc around 6:00 am ET. The 1-hour RSI is trading above the overbought territory and the pair is expected to ease its recent strength in the near-term.

Retail sales in Switzerland remained unchanged on an annual basis in October in line with economists' expectations, the Federal Statistical Office said today. In nominal terms, retail sales dropped 3.3 percent year-on-year. On a seasonally adjusted month-on-month basis, sales rose 2.5 percent in real terms and 1.6 percent nominally.

The euro advanced to more than a 2-week high of 105.15 against the yen around 6:20 am ET. The immediate resistance for the pair could be at its 30-day SMA of 105.45 and a move above that level could help testing the 23.6 percent of the retracement level around 106.20.

The monetary base in Japan surged 19.5 percent on year in November, the Bank of Japan said early in the day, standing at 118.497 trillion yen. That follows the 17.0 percent annual expansion in October. Seasonally adjusted, the monetary base spiked an annualized 41.2 percent to 121.191 trillion yen.

Against the pound, the single currency strengthened to a 4-day high of 0.8607 around 4:15 am ET and the pair was hovering around the 0.86 level thereafter. On the upside, the euro-pound pair may test the neck line of a double bottom formed in the daily chart, around the 0.8650 level.

The seasonally adjusted UK Markit/ Chartered Institute of Purchasing & Supply (CIPS) purchasing managers' index for the construction sector posted 52.3 in November, down from 53.9 in October. A reading above 50 indicates expansion of the sector.

After having tested a peak around the 1.34 level against the dollar, the European currency moved sideways after 4:15 am ET. The euro-greenback pair is presently worth 1.3484 with 1.3530 seen as the next likely resistance level.

Traders are reluctant to take positions ahead of the U.S. Labor Department's crucial jobs report, which is scheduled for release at 8:30 am ET. The report is expected to show that employment increased by about 130,000 jobs in November, although the unemployment rate is expected to remain at 9.0 percent.

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