US Dollar
Todayââ,¬â"¢s non-farm payrolls release lived up to its reputation by delivering to us a great deal of volatility, with breakouts seen in the US dollar against both the Euro and Japanese Yen.  In fact, the moves were so strong that the dollar is now trading at a six month high against the Yen and a two month high against the Euro.  However, the question of the day is whether this move is real.  The non-farm payrolls report was filled with mixed messages.  The headline index dropped to 51k, the lowest level since June of 2004, but large revisions to previous data made the overall report more bullish than bearish.  August payrolls were revised up from 128k to 188k, which is a difference of 60k jobs.  If we tacked that revision back onto Septemberââ,¬â"¢s 51k payrolls report, the numbers would be much closer to the marketââ,¬â"¢s forecast.  However the big gorilla change was actually buried deeper in the annual benchmark revision.  According to the Bureau of Labor Statistics, 810,000 jobs were undercounted in the monthly payrolls report for the 12 months up to March 2006, which is the largest revision ever.  This means that on average, 67.5k more jobs need to be added back to each monthââ,¬â"¢s payrolls report.  The release was indeed strong, but such an outlier revision, which the BLS is still looking into, is certainly interesting.  Nevertheless, it has turned the market very dollar bullish.  Fed fund futures are no longer discounting an interest rate cut later this year by the Federal Reserve.  Looking ahead, we would need to break back above at least 1.2650 in the Euro and ideally 1.2720 to reverse the dollar bullish bias in the market.  The moves today have been very strong.  The economic calendar next week is very light, with only the FOMC Minutes, Beige Book, Trade Balance and Retail Sales due for release.  The September consumer spending number will be very important.  Primary indicators suggest that the odds are more in favor of a stronger release over a weaker one.  Oil prices dropped significantly last month, which could have fueled some additional spending along with back to school sales as suggested by yesterdayââ,¬â"¢s robust same store sales report.  If this is true, the market could remain dollar bullish, but the path higher for the dollar will not be an easy one as it faces a great deal of resistance both technically and fundamentally.  US bond markets are closed on Monday for Columbus Day, but the Equity, Future and of course FX markets are open. 

Euro
The Euro has fallen over 100 pips against the US dollar despite stronger German factory orders.  Yesterdayââ,¬â"¢s comments from ECB President Trichet and this morningââ,¬â"¢s comments from Wellink validated the marketââ,¬â"¢s expectations for another interest rate hike next year, which makes any positive data that confirms that only secondary.  Todayââ,¬â"¢s US report puts the Federal Reserve a baby step further away from cutting interest rates which seemed to be enough for the market to take the Euro below the bottom of its recent trading range. Looking ahead, the ECB is still the only central bank that is increasing interest rates, which should not be ignored.  Unlike the US, there is a comparatively busier economic calendar in Europe.  Germany and France will be releasing industrial production and inflation reports. Germanyââ,¬â"¢s CPI is a final figure while France will be releasing its main one.  Despite the ECBââ,¬â"¢s comment that inflation risks are still to the upside, CPI numbers should continue to head downwards.  We are also looking forward to the European Commissionââ,¬â"¢s GDP forecasts for the Eurozone along with the ECBââ,¬â"¢s Monthly Bulletin for any clues as to how aggressive the central bank may be. 

British Pound
The British pound fell victim to dollar strength, but the sell off was limited compared to Euro thanks to more rumors of merger and acquisition activity.  Industrial production also accelerated faster in the month August, rising by 0.4 percent compared to an upwardly revised 0.2 percent in the month of July.  It has been a quiet week for the UK and the week ahead looks to be very much the same.  We have producer prices on the calendar along with the trade balance, BRC retail sales and leading indicators.  Each of these are modestly important but will not shift the interest rate outlook for the British pound which partially explains why unlike the Euro, the GBP/USD is still trapped within its summer trading ranges. 

Japanese Yen
Fears that North Korea could test a nuclear missile this weekend have many traders nervous.  This speculation comes straight from Japanââ,¬â"¢s new Prime Minister Abe who cites internal information. The yen has been punished as a result while the US dollar has benefited from rising risk aversion.  If this fails to unfold, the yen could rally in relief. Data out Japan continues to be positive for the yen with the leading economic index printing at 20 percent, against the marketââ,¬â"¢s 10 percent expectation.  The countryââ,¬â"¢s foreign reserves have also hit a record high of $878.75 billion, which is the seventh consecutive month that it has done so.  The detailed breakdown of the reserves was not disclosed but a ministry official did note that part of the rise has been due to an appreciation in the value of bonds.  Holdings of gold fell slightly.  Meanwhile EUR/JPY continues to inch closer to its record highs.  Economics Minister Ito said that the yenââ,¬â"¢s weakness is helping the economy, which is a clear indication that they are not concerned about EUR/JPY.  For more details on this, see our special report on Paulson and EUR/JPY in DailyFX.com.  Meanwhile Japanese markets are closed on Monday.  Aside from consumer confidence, we are looking forward to the BoJ monthly report and Fukui comments on October 13th. 

Kathy Lien is the Chief Currency Strategist at FXCM.