USD – The dollar is mixed this morning, gaining against the EUR and CHF, but falling against nearly all of its other major counterparts.  Stocks snapped a three-day losing streak as weekly jobless claims unexpectedly fell to the lowest since July.  The measure came in at 359K versus 385K registered last week, and better than the 375K that was expected.  The data was enough to outweigh a slew of other disappointing economic data with Q2 GDP unexpectedly falling to 1.3% versus the previous estimate of 1.7%.  Moreover, durable goods orders fell by more than anticipated, tumbling 13.2% after last month’s 3.3% gain.  While the shortfall was led by a significant drop in transportation orders – Boeing reported sales of just one airplane in August – non-transportation components contracted for the third consecutive month, coming in at -1.6%.  Finally, pending home sales dropped 2.6%, reversing last month’s gain, and short of an expected gain of 0.3%.  Nevertheless, investors are more upbeat this morning as hopes are that QE3 will encourage continued improvement in the labor market. With more Americans working, consumption is due for a rebound as well, which in turn will support further growth in GDP.   Elsewhere, rumors that Chinese authorities are mulling further monetary easing are supporting markets as well.  Consequently, the dollar remains supported within its recent ranges, albeit towards the lower end against its higher-yielding counterparts.

EUR – The euro pared modest overnight gains, again testing its 200-day MA versus the USD as Spain approved a draft budget for 2013.  Spain laid out a series of significant cuts that likely would preempt the requirements of the ECB’s proposed bond-buying program.  With the preconditions hopefully met, Spanish PM Rajoy may also be close to requesting a full-fledged sovereign bailout, much like the ones already granted to Greece, Ireland and Portugal. However, with ongoing popular protests in Spain, Greece and several other Eurozone countries, investors are wary of lawmakers’ ability to push through tough austerity measures and of what long-term impact the ECB’s program will even have.  Meanwhile, the market is still awaiting the results from the Spanish bank stress tests, with results out tomorrow likely showing a capital shortfall of €50-60B.  With up to €100B already pledged by the ECB/EU, the results should have a limited impact. 

GBP – Sterling is stronger against both the USD and EUR this morning as the UK economy contracted at a slower pace than expected.  Q2 GDP fell 0.4%, an improvement from last month’s fall of 0.5%, adding to optimism that the country’s recession is easing.  The pound gained for the first time in three days against the dollar and rose to a three-week best against the EUR following the report.  Investors were further encouraged as BoE Markets Director Paul Fisher said that Q3 GDP numbers will likely be “very strong.” 

JPY – The yen consolidated within its recent ranges overnight as rising stocks and commodities weighs a bit on demand for the JPY’s relative safety.  However, gains will likely slow in the mid to low 77’s as speculation builds that the BoJ would intervene in currency markets as Japanese corporations increasingly attribute losses to the yen’s strength.

RMB – CNH and Chinese fixing rates further diverged this morning on signs that the Chinese authorities are close to announcing further measures to backstop the faltering economy.  The offshore currency gained further traction after PBoC member Liu said that he sees the global currency system gravitating towards a “triangle of the US dollar, euro and Chinese yuan” in the next several years.  However, he went on to say that the renminbi likely won’t be fully convertible before 2020.

Commodity Currencies - Commodity linked currencies are mostly stronger this morning as rising stocks and raw goods encourages a bit of risk assumption.  The CAD rebounded from early losses as the jobs data out of the US – Canada’s primary trading partner – provides support.  Similarly, the AUD is sharply higher this morning amid speculation that China – Australia’s primary trading partner – will act to support growth in the world’s largest commodities consumer.  The NZD also gained on the Chinese rumors and as data showed business confidence gaining.

For more market reports go to Union Bank of California