Typically quiet action in the FX market as players await the US NFP release at 12:30 GMT. Overnight saw little meaningful eco data save for the Japanese Household spending figures which bounced back to 4.8% month over month gains after last months abominable decline of *4.2% On a year over year basis however, the report still recorded a small decline of *0.6% suggesting that Japanese consumer remains hampered by the energy crunch.

In Europe high oil costs also muted Swiss unemployment data which registered an 11th consecutive month of no change. Although Swiss economy has perked up considerably in the past few months, the sharp rise in oil has forced Swiss businesses to refrain from hiring as they struggle to contain input costs.

Finally in the Euro-zone, yesterday's comments by ECB President Jean Paul Trichet sparked a massive rally in the euro as he hinted that the Bank may become more hawkish on inflation. However, this morning he has already tempered his words and as a result euro's progress has stalled. The ECB must walk a very thin line between circumspect monetary policy and the political reality of its most important member state * Germany. As such, any tightening will only come after much clearer evidence of pick up in German growth.

The NFP' s are of course a mystery, especially after adjusting the number for Katrina. This fact has led the market to generally discount the report regardless of the result although volatility following the release is quite likely. However , our proprietary Sentiment Speculator Index has flash severely overbought levels in GBP/USD with 3.5 cable bulls for every dollar bull and in the USD/JPY where there are now 3 dollars shorts for every yen long. We haven't seen such skewed positioning in months which suggests that the dollar may rally once again.  

Boris Schlossberg is a Senior Currency Strategist at FXCM.