Considering the recovery in global economic fortunes during the second quarter was largely rooted in signs of life within the industrial heartlands of many developed nations, it's a comfort to see that Germany's manufacturing output has now posted three consecutive months of expansion. An upward revision to April's data today allowed that to happen. As manufacturing data turned up, more of the flames were fanned thanks to improving confidence data as shown in various PMI surveys. Germany's fortunes today, however, have become eclipsed by a downturn in those at British manufacturers and broader discussions regarding deeper fiscal stimulus.

07-07-2009 10:40 AM EDTCurrent PricePut Open IntWeekly Change in Put Open IntCall Open IntWeekly Change in Call Open IntPut/Call Open Int Ratio30-day Historical Vol (%)Implied Volatility (%)
Euro  Euro1.398312,20528916,3991,2950.713.712.3
Yen  Yen94.957558,4848599,4492596.21,334.913.8
Pound  Pound1.617012,7443268,9982041.416.013.7
Canada  Canada0.86314,3678844,022371.115.2N/A
Aussie  Aussie0.79824,154-421,3841,1440.221.217.6
Swiss  Swiss1.08461,52001,751-30.913.712.2

The euro immediately popped higher and through $1.40 against the dollar on the announcement of an improvement in German manufacturing. After all the market had expected just a 0.5% gain, while the data proved far more vigorous with a 4.4% gain over April's reading. That still leaves output 29.4% lower than one year ago yet it's encouraging given German reliance on its manufacturing exports.

Exports to non-EU nations increased by 8.2%, while domestic demand improved by 3.9%. The Eurozone is set to contract by 6% throughout 2009 and there is an awful lot of emphasis on making a return to manufacturing, longer lasting.

But two events were weighing on euro strength later in the New York session. First, British manufacturing output declined at the same time as Germany's was picking up. Data today from the ONS in London confounded expectations for a further rise in both industrial and manufacturing output, which had both previously provided hopes over economic recovery. Second, there is growing debate over the need to for further fiscal stimulus around the world. This aspect has the impact of dulling today's positive news for Germany and accelerates fears that the recovery will see the nation resume a voyage into an economic abyss, followed swiftly by the rest of the Eurozone.

It could be argued that Britain's emergence from the manufacturing gloom earlier this year was predicated on a more aggressive fiscal plan from the government. Now, while that good initial news has put a floor under how far the economy can drop, its losing its potential to expand. Both Prime Minister, Gordon Brown and the British Chambers of Commerce have both warned against reliance on a self-sustaining recovery. Weekend speculation that the Bank of England is leaning towards expanding its fiscal stimulus received further support today when the BCC argued that the Bank should make full use of its £150 billion package and then ask the government to mandate more spending.

The currency market still cares to treat fiscal expansion as a negative and sees such a move ahead as potentially debasing the pound, which today fell for a fourth day to $1.6168 versus the dollar and 86.48 pennies against the euro.

More stimulus debate was cracked open by the personal views of President Obama's advisor, Laura Tyson, who said that the initial $787 billion plan was too small and should be expanded to include more infrastructure spending. Unlike the British pound, the dollar is rising somewhat since this discussion is predicated on a worsening of the underlying economy, which drives demand for safe haven assets.

On that front we once again note the rise in the value of the Japanese yen, which is trying hard to push below ¥95 against the dollar. After earlier weakness against the euro, the yen is now making gains to ¥133.00.

Both commodity dollars are marginally higher today. The Aussie buys 79.94 U.S. cents and the Canadian unit bys 86.40 cents. Today the Reserve Bank of Australia left its benchmark interest rate unchanged at 3% but noted that due to a sanguine inflation environment, the door was still open to lower rates moving forward. That's taking the shine off the Aussie just a shade, and added to recently lower commodity prices, notably gold, there's a laundry list of reasons not to hold the Aussie just now. If equity prices do crucial support throughout July, you can bet the commodity dollars will ease further.