USD – The dollar is stronger against all of its major counterparts this morning, supported by data out of both the US as well as other major global economies.  Domestically, all eyes are on employment.  Private payrolls provider ADP released their monthly gauge of employment change with a better-than-expected reading at 162K versus the forecast for 142K.  Nevertheless, today’s reading does mark a sharp decline from last month’s numbers, even after they were revised lower to 189K.  ISM non-manufacturing data was released higher than expected with the gauge rising to 55.1, the best reading in more than five months.  Homebuilding is proving to be one of the bright spots of the recovery with last month’s reading marking the strongest pace of single-family home starts in more than two years.  Elsewhere, data showed that both services and manufacturing shrunk in the Eurozone last month while Chinese services expanded at the slowest pace in more than a year.  Consequently, the investors are drawn to the dollar’s “safe-haven” status this morning as the US economy looks relatively healthy as compared with its major peers. 

EUR – The euro slipped back towards the lower end of its ranges as both service and manufacturing sector data showed a deeper contraction than expected.  PMI Services in the region’s two largest economies, France and Germany, both contracted at 45.0 and 49.7 respectively.  The German number is holds the most weight with the gauge slipping below 50.0 for the first time in nearly three years.  With five Eurozone nations already mired in recession, the abysmal numbers out of the supposed economic engines of the region are weighing heavily on investor sentiment.  German business confidence also unexpectedly fell to the lowest levels in 2½ years as fiscal tightening throughout the Eurozone takes its toll on the outlook for the region.  Separately, Eurozone retail data showed that sales barely grew in September while the region-wide unemployment rate came in flat at 14.8%.  Nevertheless, the euro remains supported towards the top of its recent ranges.  While its failure to make a convincing break above the key 1.30 handle suggests that the downside will prevail in the medium to longer term, the effects of QE3 have limited any immediate sharp declines.  While no major changes are to be expected, investors will be closely watching the ECB tomorrow and any comments they make on future policy.

GBP – Sterling is lower against both the EUR and USD as British services unexpectedly contract.  PMI services came in at 52.2 versus 53.7 in the previous month, and short of the 53.0 that was anticipated.  While British policymakers have been slightly more hawkish in tone lately, the recent soft data may force the BoE’s hand sooner rather than later.  While no immediate action is expected, investors will take note of any hints of further easing in the months to come at tomorrow’s BoE meeting. 

JPY – The yen extended its modest declines this morning, falling back towards the mid 78’s against the USD.  While the rash of negative global data would normally result in a sharp yen rally, recent interventionist rhetoric is causing investors to seek safety elsewhere.  Newly minted Finance Minister Jojima has voiced his opinions on the yen’s recent strengths all week long, with his most recent comments suggesting that he plans to bring the topic up at an upcoming G7 summit.  Consequently, the yen will remain under pressure in the near term.

Commodity Currencies – The commodity linked currencies are broadly lower this morning as most raw good prices fall.  The CAD pushed back towards the bottom of its recent ranges as the positive US data was not enough to overshadow the negative numbers out of both Europe and China.  The falling price of oil – Canada’s main export – is also dragging the loonie lower.  The AUD extended its recent slide overnight as the Australian trade deficit widened by the most since 2008.  With falling demand for Australian exports, the AUD could extend its recent losses.


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