Top Stories

* Russia halts gas supplies to multiple EU nations

* Greman Unemployment rises for first time in 3 years

* Alcoa to cut 13,000 jobs

* Indian stocks plunge 6% rocked by fraud scandal in Satyam Computer Services

* Oil at $48 steady as Mideast conflict persists

* Gold back above $850 at $866/oz last

* Equities weaker as Alcoa news weighs but volumes low

Overnight Eco

* NZD Trade Balance -520M better than -833M forecast

* AUD Retail Sales Trend in line at .1%

* AUD HIA New Home Sales -1.1% vs. 3.1% last

* NZD ANZ Commodity Prices decline -7.4%

* EUR German Unemployment Change rises to 18K vs. 10K forecast

* EUR PPI -1.9% much lower than -1.1% forecast

* GBP BRC Shop Price Index n/a

Event Risk on Tap

* USD ADP Non-Farm Employment Changeexpected at -400K

Price Action

* USD/JPY trades all the way through 9300 as equities weaken into Europe open

* AUD/USD steady at 7200 as Retail data comes in line

* GBP/USD drops below 1.4900 on moderate profit taking

* EUR/USD races to 1.3600 but weak unemployment data halt the advance

The euro staged a strong rebound in early European trade this morning rising all the way above the 1.3600 handle, but news of greater than expected job losses in Germany halted the advance at that level for the time being. The rally in the pair started in Asia as bargain hunters remerged near the 1.3500 figure attracted to the relative value in the pair after three straight days of selling. The push higher caught the shorts by surprise and EUR/USD quickly ran through the 1.3600 barrier after triggering a slew of stops.

The news out of Germany however, paused the rally as unemployment in EZ largest economy rose for the first time in 3 years by a greater than expected 18K jobs. Today's data point is the first clear evidence of a trend change in German labor market conditions, suggesting that further job losses are on the way as 2009 unfolds. The news is likely to confirm market expectations of a 50bp cut from ECB next week and should the labor situation deteriorate further, it will no doubt lead to additional interest rate cuts as the year progresses. We have argued ad nausea that ECB monetary policy in 2009 will be driven by the conditions in the German labor market and we continue to believe that this will be the primary negative factor on the euro this year.

Tonight however, the market has chosen to shrug off the news as traders remain hopeful that ECB will resist the temptation to follow the rest of the G-4 universe towards zero interest rate policy. One other reason for euro's strength today is the trepidation of the market ahead of US Non Farm payroll data on Friday. Later on in the day, traders will get a glimpse of the US labor conditions through the ADP report due at 15:15 GMT. Consensus calls are for -495K print, but many market participants fear that the number may be much worse.

Although the ADP data is notoriously unreliable in predicting the final NFP result, it may provide a clue to the severity of job losses. If the ADP figure is within the -500K range the news may actually turn out to be dollar positive as the market has basically discounted that number. On the other hand if the ADP results show a much greater than expected loss of upwards to -600K or possibly even -700K jobs the pressure on the dollar is likely to resume. Thus as we prepare for the North American open the 1.3600 level in the EURUSD remains the pivot point as traders await the US news.

Economic Indicators Update