European exports increased in November, led by France and the Netherlands, and the monthly trade surplus swelled to the most since July 2004, adding to signs that the euro-area economy may be stabilizing.

Exports from the euro region rose a seasonally adjusted 3.9 percent from October, when they dropped 2 percent, the European Union's statistics office in Luxembourg said today. Imports were flat and the trade surplus widened to 6.1 billion euros ($7.8 billion).

European Central Bank President Mario Draghi said yesterday that the euro-area economy is showing "tentative signs of a stabilization in activity at low levels." While Draghi still warned of "substantial downside risks," the ECB voted to keep interest rates at a record low. EU President Herman Van Rompuy said on Jan 11 that the current euro exchange rate against the dollar, "is favorable for exports."

Today's data "boost hopes that net trade was positive in the fourth quarter and limits likely overall euro-zone gross domestic product contraction," Howard Archer, chief European economist at IHS Global Insight in London, said in a note to clients. Still, stagnant imports signal "weakened euro-zone domestic demand," he said.

Eoin Treacy's view Spending cuts, slimming down the public service, higher taxes, lower wages and high unemployment among other factors have contributed to lower and, in some cases, negative growth across Europe. Short-term interest rates in the Eurozone are now at 1% and could fall further if inflationary pressures remain muted.

As mentioned in yesterday's Comment of the Day, the ECB has taken a more proactive role in managing investor expectations, 10-year - 2-year spreads have risen almost everywhere except Greece and the European equivalent of the TED spread has contracted. The crisis is not over. A satisfactory resolution will take time. However, a concerted effort appears to be underway to bolster confidence and that is to be welcomed.

The Euro's Trade Weighted Index posted a new reaction low this week, having fallen for 9 of the last 10 weeks. It is oversold relative to the 200-day MA and has paused near 120. However, today's additional weakness will need to be quickly countermanded, with an upward dynamic, to check downside scope. Potential for at least a partial unwind of the oversold condition is increasing but the Index will need to hold an upward dynamic for more than a few days and break the short-term downtrend to signal a return to demand dominance beyond the very short term.

A weak Euro will help improve the competitiveness of the Eurozone's export oriented manufacturers. The Blue-chip Dow Jones Euro Stoxx 50 Index has held a progression of higher reaction lows since retesting the 2009 nadir in September. It has now returned to test the area of the 200-day MA and the lower side of the overhead trading range. A sustained move above 2500 is required to confirm a return to medium-term demand dominance.

Interestingly, the three best performers so far this year on the German DAX Index have been car manufacturers. They represent some of the companies most likely to benefit from a weak Euro. BMW fell abruptly in August and rallied well from the early October low. It has rallied back to test the €60 area but needs to sustain a move above it and hold the progression of higher lows on the next pullback, if the medium-term upside is to continue to be given the benefit of the doubt. Volkswagen has a similar pattern recently.

Daimler has been a laggard and gave up more of its earlier advance during 2011. It has rallied to close the overextension relative to the 200-day but will need to sustain a move above €40 to begin to suggest a return to medium-term demand dominance. Volvo has a similar pattern.

Peugeot Citroen stated today it is "absolutely open" to a tie-up with another major car manufacturer, possibly Fiat. The share yields 8.23% and the dividend is covered more than 4 times. However, we would welcome some feedback from the Collective on whether the dividend is sustainable given the company's disappointing sales in Europe. Prices appear to have stabilized in the region of the 2008 lows and a sustained move below €12.25 would be required to question potential for continued higher to lateral ranging. Fiat remains in the region of the November lows and needs to hold a move above €5 to suggest more than a temporary return to demand dominance. Fiat Industrial posted a new recovery high this week and has held a progression of higher reaction lows since October. Renault has stabilized in the region of the lower side of the 2-year range. It is now testing the October peak and the 200-day MA. A sustained move above €32 would bolster the case for continued high to lateral ranging.

Elsewhere in the global auto sector Ford, General Motors and Honda share a similar pattern with Daimler above. Nissan continues to range with a downward bias. Suzuki Motors, Mitsubishi Motors and Toyota Motor continue to labour under the strength of the Yen and remain in medium-term downtrends. Isuzu Motors is a Japanese relative strength leader. It is has held the progression of higher or equal reaction lows since 2009 and is currently rallying toward the psychological ¥400. A sustained move above that level would reassert the medium-term uptrend.

India's Tata Motors has regained a position of outperformance relative to the Nifty and posted a new recovery high this week. The upside can continue to be given the benefit of the doubt provided it holds the three-month progression of higher reaction lows. Maruti Suzuki India remains in a consistent medium-term downtrend.

The Chinese auto sector has also contains a number of relative strength leaders as well as a number of under performers. In the leaders category, Greatwall Motors has held the majority of its advance from the 2008 lows and rallied this week to break the almost yearlong progression of lower rally highs. Dongfeng Motor Group has rallied impressively from the October lows. A sustained move above HK$16 would break the medium-term downtrend and suggest a return to demand dominance beyond the short term.

In the laggards category Shanghai Auto has been trending consistently lower for a year. Geely Automobile has more than halved over the last year but is beginning to show tentative signs that demand is returning to dominance.

In the South Korean auto sector Hyundai Motor found support in the region of the 200-day MA in December and a sustained move below KRW200,000 would be required to question potential for some additional upside. Kia Motors has experienced a more pronounced loss of momentum. It is currently testing the 200-day MA and needs to hold above KRW 60,000 to offset Type-3 top formation characteristics.