The better tone in stocks has ensured a preference for risk this morning.  However, conditions remain fairly lacklustre ahead of this afternoon's US August non-farm payrolls release.  Trichet's comments this morning served to underline his cautious tone which was clearly evident in his speech at yesterday's ECB press conference and these sentiments have been reiterated by comments from the ECB's Weber that 'huge uncertainties' remain as the slump bottoms out.  Given that Treasury Secretary Geitner has also this week made clear the view that it is too early to implement exit policies, the market is taking a fairly pragmatic view ahead of this weekend's G-20 Finance Ministers meeting in London.  It is accepted that exit strategies will be discussed but there is likely to be no rush to change the policy status quo after these meetings. 

The EUR has edged little higher vs both the USD and the JPY this morning in tune with the better tone in stocks.  Economic data have been light with the strong 6.0% y/y rise in UK new car registrations being welcome but surprising no one given the government's scrappage incentive.  OECD forecasts that the UK economy may not return to growth until next year were played down by Chancellor Darling this morning; the government retaining the view that the UK would see a return to growth around the turn of the year.  While the weaker USD has seen cable at USD1.63600 this morning, the perception that the UK's economic recovery is lagging has made it tough for sterling to extend yesterday's post PMI services data rally.  EUR/GBP continues to hold around the GBP0.8730 pivot. 

The release of the nonfarm payrolls data this afternoon could set the tone for the coming weeks.  Risk appetite this week has been constrained by the view that rallies in stocks and commodities may have overstated the recovery in demand.  The Fed's concern that rising joblessness will continue to have a negative impact on consumption describes a key risk that still faces most economies going forward.  The market is expecting payrolls to drop by -230K.  This represents a significant improvement from the numbers registered earlier this year but could still be sufficient to push the unemployment rate to 9.5%. A number comfortably better than expectations will be needed to give a fresh injection to risk appetite.  A number in line with the median expectations would likely underpin the potential for a moderate corrective phase in risk over the next few weeks.