USD – The USD is mixed this morning as US markets reopen in the aftermath of Hurricane Sandy.  However, with power and public transportation across the Eastern seaboard patchy at best, financial markets have been left susceptible to volatile swings with most trading desks operating with skeleton staffs.  Investors took note of Chicago PMI data this morning with the index unexpectedly contracting for the second straight month at 49.9. While the data reflects the diminishing role manufacturing is playing in the US economic recovery, the sector may actually benefit from the rebuilding efforts from Hurricane Sandy in the longer term.  The storm will likely have an immediate negative impact on the economy largely due to lost business, but the unavoidable uptick in construction and related services will ultimately provide support.  Meanwhile, investors remain focused on this week’s labor market data with both nonfarm payrolls and unemployment due on Friday.  Jobless claims could tick higher over the next several weeks as employers in the Northeast are forced to lay off workers until business resumes as normal.  Consequently, the dollar will likely remain under pressure in the immediate term as the disaster costs mount, but the ongoing themes of Presidential politics, an otherwise improving economy, and continued weakness abroad will ultimately continue to provide support.

EUR – The euro briefly broke back above the key 1.30 barrier against the dollar overnight before paring much of its gain.  The support comes after Spain posted a second-straight current account surplus, a euro-era first, as foreign investors increased their holdings of Spanish assets for the first time this year.  The government’s deficit also narrowed in September, buoyed by a surprising uptick in tax receipts despite unemployment recently breaching 25%. The data supports PM Rajoy’s resistance to seeking foreign aid or tapping the ECB’s OMT bond program.  However, the modest improvement in data should not be mistaken for an economic recovery with Spanish GDP now contracting for five consecutive quarters. Economic weakness is permeating across the continent with Eurozone unemployment today swelling to a record high of 11.6%. Even still, investors remain optimistic that Eurozone policymakers are taking steps to backstop the region’s troubled economies. Rumors are that the Portuguese parliament is nearing a budget agreement with its foreign creditors would ease conditions for securing future aid installments. Meanwhile, policymakers appear close to agreeing to an extended timeline for Greece to reach its deficit goals in light of an unprecedented sixth year of recession. The common currency is thus well supported within its recent ranges, but its upside potential remains limited.

GBP – Sterling is higher this morning versus both the EUR and USD as investors pare expectations of further BoE stimulus.  While a more hawkish stance is to be expected in light of the recent improvement in economic data, support this morning is being derived from an SNB statement that it will be decreasing its EUR holdings in favor of the pound.  The BoE meets next Thursday with their current QE program set to expire, and with no change in policies anticipated.

JPY – The yen eased some of its gains from yesterday morning as the risk-on trade saps demand for its relative safety.  With the BoJ adding ¥11T (¥10T was widely expected) to its asset purchase program yesterday, the yen will likely remain well entrenched within its recent narrow ranges.

Commodity Currencies – The commodity linked currencies are relatively flat this morning despite the rise in raw good prices.  Oil rose to $86/bbl, gold gained to $1721/oz, and copper pushed up to $353/lb.  The CAD is surprisingly flat this morning despite a GDP report showing that the Canadian economy contracted for the first time in six months. Losses have been mitigated by hawkish central bank commentary with BoC Governor Carney telling reporters that higher interest rates are “likely required.” Similarly, the MXN remains near a seven-week low against the USD as slow growth elsewhere in North America will likely weigh on demand for Mexican exports. The AUD and NZD remain elevated after building data out of both South Pacific nations came in above forecast. The Aussie is also higher ahead of a report due this evening that is expected to show that Chinese manufacturing returned to growth this month after unexpectedly contracting in September.

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