• Dollar Bulls Anticipate Continued Strength In NFP Friday
• Euro Data Mixed, Exports Strengthen
• U.K. Services Tick Higher, Continues to Underpin Growth

US Dollar
Dollar bullishness is slightly mounting ahead of tomorrow's non-farm payrolls report on rather positive data seen today.  Already pricing in one more 25 basis point rate increase by the Federal Reserve, traders will be looking forward to continued strength in the U.S. labor force as suggestive of further growth in the New Year.  This would ultimately add to anticipation of further rate increases even after the incumbent Greenspan leaves office.  Today, market participants were privy to several reports including the Institute for Supply Management index.  A gauge of purchasing in the services industry, the report was higher than economists had anticipated and rose to a reading of 59.8.  The figure follows a previous 58.5 print and is suggestive that the services industry remains strong, a positive sign as the sector accounts for 90 percent of overall activity.  Additionally, initial jobless claims dipped to a five year low against expectations, posting 291,000 versus 320,000 expected for the week.  Taking into consideration the two reports, traders are bullishly anticipating the employment report tomorrow and expect a positive report to further the dollar uptick that was seen in most of last year.  However, expectations past March may be crimped as retailers saw mildly higher seasonal sales.  Posting the lowest seasonal sales figure in five years, retailers struggled to lure shoppers out with heavy discounts on goods.  Although discounts are a trademark to seasonal shopping, deeper cuts were offered as sales were only boosted 3.2 percent and remain suggestive that consumer spending that has propped up the economy recently may not last forever. 

Euro
Euro data was relatively mixed on the day as a slew of reports were released for the session.  Positive for euro favored traders, the market saw German factory orders rise above expectations for a decline of 1 percent on the monthly comparison.  This now bolsters the annual figure considerably higher at 13.5 percent for the year.  Additional evidence of strength in manufacturing and exports were seen in regional PMI data.  According to the Purchasing Managers' equivalent in the Euro zone, service manufacturing activity rose in major countries including Italy, France and Germany with the overall zone composite gauge rising to 56.4.  The two reports are indicative of one simple fact, that global demand has picked up for Euro made products and services as a depreciated domestic currency has given more purchasing power to the region's trade partners.  It also lends to further speculation that the gains should sooner or later trickle in to the economy.  However, according to subsequent reports on the day, this may not be the immediate case.  Consumers remain hesitant in contributing to the potential turnaround as retail sales in Germany, the zone's largest economy, dipped a whole one percent on the month.  Sales were expected to rise mildly by economists.  This now places overall annualized sales in negative territory and is reflective of the poor confidence figures that followed.  Coupled with low producer price inflation in the region, sentiment continues to question the much needed 25 basis point rate hike by the European Central Bank and any further ones after that.

British Pound
Services data in the U.K. followed suit as the region's index of business activity rose the most in 20 months in December.  Powered by the services sector including information technology and communications, the gauge climbed to a reading of 57.9 from a previous 55.8 print according to the Chartered Institute for Purchasing and Supply.  This bodes well for the region as the sector accounts for three-quarters of overall activity in the $2 trillion economy after witnessing the slowest pace of growth since 1992 last year.  Coupled with the recent up tick in manufacturing and a bottom in housing price valuations, the need for a rate cut consideration may be on its way out as some concerns posted by policy makers look to have been addressed.  Inflationary pressures additionally look to simply be a temporary shock as crude oil prices have abated and companies and individuals deal with slightly higher commodities.  The only downside factor seems to be the consumer.  Individual spending continues to remain weak according to the most recent CBI distributive trades survey.  As a result, the only panacea seems to be lower rates in order to spark consumption and lead expansion in the economy.  Until consumers feel empowered to open their purses and wallets, rate cut considerations look to plague the domestic sterling.

Japanese Yen
No economic news was released today to spur the Japanese yen in either direction, set aside from annualized vehicle sales data.  For the month of December sales declined 9.7 percent on an annualized basis.  As a result of the scant action, traders are now anticipating next week's full schedule of events.  Next week, market participants will be able to see household spending data along with leading economic and coincident indexes.  Coupled with machine tool orders, traders will be able to better assess the world's second largest economy as bullish speculation continues to hope for any signs of inflationary pressures.  With spending incrementally higher and continued strength in exports, reasoning leads to at least some signs of rising prices.  However, with deflation still persistent, policy officials remain steadfast in their belief of looser monetary policy.  This will ultimately lead to further downside in the yen as the currency pair continues be a carry trade favorite.

Kathy Lien is the Chief Currency Strategist at FXCM.