USD - The dollar is headed higher this morning against the majority of its counterparts after the release of encouraging US trade data. The current account deficit narrowed by more than forecast, led by an uptick in exports and an increase in income surplus. The gap shrank to $117.4B from $133.6B in the previous reading, beating out the consensus forecast for a shortfall of $125B. However, the data is a lagging indicator with continued weakness in both Europe and Asia likely weighing on the export industry heading into the end of the year. A separate report showed that international demand for US assets unexpectedly surged last month with overseas concerns driving demand for "safe-haven" assets. These safety capital flows may only strengthen further in the months ahead as investors' focus shifts back across the Atlantic to the Eurozone's struggling member states. Nevertheless, the dollar's gains will remain tempered in the near term as investors discount the depreciative effects of the newly announced QE3 program. While "Operation Twist" - the program under which the Fed swaps out short-dated securities for longer dated ones - is set to expire at the end of the year, most investors suspect the Fed will continue buying US Treasuries, further depressing US debt yields.

EUR - The euro is lower against most of its peers this morning after a survey showed that German investor sentiment stayed negative this month despite the ECB's plan to buy regional debt. The ZEW survey tumbled to 12.6 from 18.2 in the previous reading as the region's economic troubles outweigh policymakers' attempts at stabilization. However, the common currency remains well supported above the key 1.30 handle against the USD even as Italian and Spanish bond yields creep higher. Spain successfully sold off €4.6B worth of debt this morning at a lower cost than in the previous auction of similarly-dated securities, but it appears the window for selling debt at sustainable yields may be closing. The ECB's bond-buying scheme has largely been priced in to the Spanish debt market, but that was with the assumption that a request for ECB assistance would be forthcoming. However, the Spanish have stalled the process with PM Rajoy now signaling he might not seek outside help. Spain's new stance of going-it-alone is only raising the stakes with €20B worth of debt redemptions due at the end of October. Consequently, Rajoy's peers are urging him to request a sovereign bailout for Spain to at least reduce the uncertainty. However a Spainsh "bailout" would immediately raise questions over the size of the EFSF/ESM and what buffer would remain, if any, should another nation require assistance.

GBP - The pound consolidated in its higher ranges overnight after the most recent reading of British CPI showed inflation ticking higher. Retail prices eased modestly, but the rise in overall inflationary pressures will likely keep British policymakers sidelined for at least the rest of the year. With the BoE suddenly proving far more hawkish than either the Fed or ECB, the pound has enjoyed a modest rally, but gains have thus far been capped near the yearly high reached back in April.

JPY - The yen consolidated in its new lower ranges overnight ahead of a key BoJ announcement due later this afternoon. While any central bank action is unlikely to match the magnitude of the Fed's QE3 or the ECB's OMT programs, the Japanese authorities are surely feeling the pressure to act. Continued economic weakness aside, Japanese companies are again under the weight of an appreciating currency. Moreover, the central bank may be compelled to act amidst worsening political gridlock in Tokyo.

Commodity Currencies - The commodity linked currencies are generally weaker this morning as raw goods are lower. The CAD is down, but remains relatively well supported towards the top of its recent ranges as investors are optimistic that QE3 will support US demand for Canadian exports. The AUD extended its recent declines after minutes from the RBA's last meeting showed that policymakers see the Aussie's strength detracting from overall economic competitiveness. Nevertheless, the AUD's recent surge above the 50-day, 100-day, and 200-day moving averages vs. the USD signals that further gains may be in store with a retest of the yearly high (1.0878) possible should investor sentiment improve further.