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Top Stories

• German unemployment rises for first time in 19 months
• UK PMI Construction beats 53.9 vs. 50
• Nikkei -2.21% Europe up 0.39%
• Oil at $92.72/bbl
• Gold at $1731/oz.

Overnight Eco

• AUD Building Approvals (MoM) (SEP) -13.6% vs. -4.5%
• EUR German Unemployment Change (OCT) 10K vs, -10K
• EUR German Unemployment Rate s.a. (OCT) 7.0% vs. 6.9%
• GBP Purchasing Manager Index Construction (OCT) 53.1 vs. 50

Event Risk on Tap

• USD ADP Employment Change (OCT) expected at 100K

Price Action

• USD/JPY holds above 78.00
• AUD/USD stalls at 1.0400 and turns
• GBP/USD holds above 1.6000 on better PMI
• EUR/USD 1.3800 caps the rally

Another whipsaw session for EUR/USD in early European trade as the pair first rallied to 1.3800 on short covering flows and rumors of possible Chinese investment into EFSF only to sell off back to 1.3750 on news that the  EFSF bond issue would be delayed. Trading in the pair remains very jumpy as headline risk continues to dominate flow with focus now turning to today’s meeting between Greek Prime Minister George Panpandreou, French President Nicolas Sarkozy and German Chancellor Angela Merkel.

Mr. Papandreou’s call for a national referendum on the bailout deal for Greece has thrown the markets into a state of panic as traders fear that any delay  could force Greece into bankruptcy. The situation remains in a state of flux and Mr. Papandreou will face a no confidence vote this Friday that could determine if the referendum goes forward or not.

Meanwhile on the economic front data in the Eurozone continued to disappoint with unemployment rising for the first time in 19 months while manufacturing contracted for the third month in a row. German unemployment  missed expectations rising by 10K versus forecasts of -10K drop as the unemployment rate climbed to 7.0% from 6.9% eyed. The economic news from Europe suggests that the EZ may be flirting with contraction as we approach the end of the year - a prospect that would only exacerbate the region’s credit problems. Rising debt service costs and slower growth could create a dangerously toxic situation   for the EZ economy raising serious doubts about the viability of the EFSF bailout fund. 

In UK the PMI Construction report surprised to the upside printing at 53.9 versus 50.2. This was the best reading in 3 months and provided some welcome relief after yesterday very weak PMI Manufacturing data. PMI Construction however is the least important of the three surveys and tomorrow’s PMI Services report will carry much greater weight with the market. For the time being the good news helped to keep cable above the 1.600 level as it outperformed other majors.

In North America today the early focus will be on the ADP report with market anticipating a small bump to 100K from 91K the month prior. Given the relatively steady state of weekly jobless claims the forecast may be accurate, but at 100K job growth the US economy will remain in a very slow state of expansion. Today’s FOMC meeting and the press conference by Chairman Bernanke could provide much more volatility especially if the Fed chief ratchets down GDP projection for 2012 and suggests that the central bank may pursue further easing measures. 

One of the primary reasons why EUR/USD has not fallen harder despite so many problems in the EZ credit markets, is the Fed’ persistent focus on QE policy. The threat of further dilution of the currency has kept a lid on the dollar rally and if Dr. Bernanke hints that there may be more to come the EUR/USD could rally irrespective of the drama in Athens. 

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
USD	12:15	8:15	ADP Employment Change (OCT)	100K	91K

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.