USD - After eight consecutive increases, the closely watched ISM index shook the markets as it slipped back in September disappointing expectations of a further rise. ISM declined from 52.9 in August to 52.6 in September whereas consensus was looking for 54. Ironically the softer ISM came just as consumers had started to come out of the cave - something the markets have been longing for for quite some time. Private spending surprised to the upside in August and although it was boosted by a temporary rise in car sales. This morning September ISM Non manufacturing index came in at 50.90 better than expectations. Pending home sales rose fiercely in August by 6.4% adding to a 3.2% rise in July. This points to a strong rise in existing home sales in the coming months. Part of the rise is most likely related to the tax credit expiring in November which has pushed forward some house buyers. The USD declined this morning against the EUR as stocks rose after Goldman Sachs Group Inc. recommended large banks and U.S. service industries expanded, encouraging investors to buy riskier assets. G-7 finance
officials refrained at the end of talks on Oct. 3 from calling for measures to bolster the world's main reserve currency. They repeated language they used in April in their statement, saying excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.

EUR - The euro held gains as the G7 meeting over the weekend ended with no major pronouncements on the dollar. The euro rose to post G7 meeting highs at 1.4647 today after falling following Friday's weaker than forecast jobs report. The euro continues to benefit from signs of improving economic conditions in Europe. The Euro Zone Purchasing Manager's Index rose to
51.1, climbing further into the 50 territory separating growth from contraction. Despite this, jobs remain elusive with the unemployment rate rising slightly to 9.6% in August. Euro strength appears not to be of major concern to European authorities. ECB member Ewald Nowotny commented today that current euro levels were not a threat and warranted scrutiny but no major action. Given the current environment and apparent comfort of European authorities, the euro is likely to make continual, gradual gains vs. the dollar.

GBP - The British pound continued its decline after UK banking stocks fell on concern that the economic recovery may be delayed as economic growth is still fragile. UK house price data will be released this week and is expected to show price growth slowed last month. Bank of England
Governor Mervyn King dented the sterling recently after commenting that the weaker pound was helping to cushion the UK's down-turning economy and will help reorient the UK economy toward exports. He also cautioned that the UK economy may be picking up, but people should not get too carried away as the growth was small. Expect UK monetary policy to stay loose for some time.
JPY - The Japanese yen retreated from most major currencies as Japan's Finance Minister Hirohisa Fujii issued a statement that his nation is open to intervening in the currency market. At the G7 meetings, Fujii said that Japan will take action if currencies show excessive moves in a biased
direction. This is a change in stance from when Fujii first took office in September, where he had formerly supported a strong yen, which threatened exporters' profits. The yen has fluctuated in the past month mostly on comments made by Fujii. A rise in global equities has also helped weaken the yen as investors exit the safe haven currency.

CAD - The loonie saw a range of 2.8% last week based upon risk attitudes and poor US economic data. The loonie moved as high as 1.0986 followed by a low of 1.0675. Crude oil followed suit ranging 8.5% on the session posting a low of $65.61 all the way up to $70.96. Warnings of damage to Canada's recovery came last week as Bank of Canada Governor Mark Carney said the economy is recovering from its first recession since 1992 and repeated that persistent strength in the currency could offset the improvement in growth and keep inflation below its target. Growth has resumed in Canada, other things being equal, a persistently strong Canadian dollar would reduce real growth and delay the return of inflation to target. Carney reiterated that the central bank will keep its benchmark lending rate at a record low of 0.25% until June 2010 unless the inflation outlook changes materially. Expect the USD/CAD to proxy with equities, commodities and US economic data.
MXN - Peso began the week with its first rally in four days as U.S. stocks helped boost investors' appetite for higher-yielding, emerging-market assets. This was followed by an 'about face' as equities and commodities reversed gains mid-week. Mexico may stave off a credit-rating downgrade as Standard & Poor's and Fitch Ratings signal they are giving the country the benefit of the doubt as it seeks to rein in its budget deficit. S&P and Fitch Ratings both have Mexico's BBB+ rating, which is three levels above junk, on outlook negative as declining oil output swells the budget gap. Economic activity for July was as follows, Agriculture (-1.7% vs. 2.8% June), Industrial Production (-6.5% vs. -10.3% June), Services (- 7.6% vs. -7.5% June). Mexican President Felipe Calderon is proposing tax
increases and spending cuts in the 2010 budget bill to offset the impact of sliding oil output. Expect peso to continue to be governed by crude oil and US data.

CNY - The Chinese yuan is unchanged at 6.8260 amid holidays in China.

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