Stocks have edged higher in Europe this morning following the generally better tone of ex-Japanese equity indices in Asia overnight.  The improvement in risk appetite lacks momentum, however.  EUR/USD has failed to push above the 1.4310 level and EUR/JPY, a solid measure of risk appetite, remains well below levels held earlier in the week.  The release of better than expected UK services PMI (at 54.1) helped support the moderate improvement in sentiment and sent cable to a USD1.6373 high and EUR/GBP down to 0.8763 but the main focus of the European session will be the upcoming remarks from ECB President Trichet.

So far this week, statements from both the RBA and the Fed (minutes from Aug FOMC) have reflected economic outlooks weighted by caution. While both central banks acknowledged the improvement in the economic backdrop, the Fed remains concerned about the impact of rising unemployment on household spending and indicated a continuation of easy monetary policy.  Despite presiding over an economy which avoided recession during the financial crisis, the RBA disappointed the hawks this week by suggesting that present policy is appropriate.  The tone of these central banks has been echoed by US Treasury Secretary Giethner who stated that it is too early to remove policies aimed at boosting growth.   The ECB is widely expected today to announce upward revisions to its growth forecasts following the surprise 0.3% q/q growth in both Germany and France in Q2.  Trichet, however, is likely to follow the same path as the Fed and signal no change to accommodative policy for the foreseeable future.  This morning's data from France showed a rise in unemployment to 9.5% and services PMI in both France and Italy were today confirmed to be below the crucial 50 level in Aug; both these data emphasis the vulnerability of the nascent economic recovery.  While the EUR may gain a little from better economic forecasts, upside on the back of Trichet's remarks is unlikely to be significant suggesting a continuation of range trading for EUR/USD. 

In view of the slight increase in risk appetite, the yen has edged lower across the board today.  The DPJ's Fujii, a possible contender for the new finance minister talked down the use of currency intervention as a ordinary policy tool, though stated it could be used when the JPY moves abnormally.  In essence, however, this policy is not different from that of the outgoing administration.   Australian trade data overnight was significantly worse than expected at â€AUD1556mln in July on the back of a sharp rise in imports.  Despite its negative implications for the AUD, the AUD moved higher overnight supported by the better tone of stocks. 

In addition to the ECB, focus this afternoon will be provided by US ISM non-manufacturing and initial claims.