US Dollar
Disappointing US data has sent the dollar tumbling to a fresh monthly low.  Although the University of Michigan consumer confidence survey increased last week, the Conference Boardâ�,��"�s number dropped from 105.9 to 105.4.  Consumers were less optimistic about the current state of the economy, but were optimistic about the future. With oil prices low and interest rates steady, it is not surprising to see consumers adopt a more jovial mood as we get closer to the holidays. Manufacturers however did not share the same sentiment.  The Chicago PMI report dropped from 62.1 to 53.5, the lowest print since August 2005.  Inventories accumulated to the highest level since the 1970s, which suggests that some harsh measures may need to be taken to rein in those numbers.  Chicago is not the only region to be suffering from the slowdown in the manufacturing sector as the Philadelphia Fed index reported a very sharp drop earlier this month.  Even thought the US is a service based economy, the weakness of the manufacturing sector is still very important.  Todayâ�,��"�s data suggests that we could see a fairly deep retracement in the national ISM report due out tomorrow. The only upside surprise today was in the employment cost index. However rising labor costs is a burden for companies and hardly a very promising development.  Tomorrow we get a first peek at how Fridayâ�,��"�s non-farm payrolls report could turn out through the ADP release.  Last month the ADP payrolls number came out far below the marketâ�,��"�s forecast for payrolls and interestingly enough, the ADP number was the more accurate projection for payroll gains in the month of September.  The latest reports confirm that the Fed needs to leave interest rates untouched until early next year.  Fed Fund futures are currently pricing in a 70 percent probability of a 25bp rate cut in the first half of next year. 

Euro and Swiss Franc
There were disappointments from all around the Eurozone this morning, but early morning losses were quickly erased after US data also failed to live up to expectations.  Even though German consumers and businesses have been more optimistic, the behavior of consumers does not reflect that.  Retail sales were originally predicted to rise by 0.6 percent, but instead, it dropped by 1.7 percent, which was the third consecutive month of falling consumer demand as well as the biggest drop since May 2004.  French consumer confidence also weakened against expectations for an improvement while France and Italy both reported larger drops in producer prices.  The fact that actual data shows weakness makes it logical for the market to shrug off the improvement in yet another sentiment index.  Later this morning, the Eurozone reported a small up tick in industrial confidence.  With growth indicators weakening and inflation estimates falling, the ECB may begin to tame down their calls for more interest rate hikes.  They are still expected to lift rates by another quarter point, but warnings are already beginning to filter in.  ECBâ�,��"�s Draghi said today that weaker US growth could drag Eurozone growth lower as well.  We get a one day break on European data, but Thursday delivers a very heavy calendar with the highlight being the ECB monetary policy meeting and President Trichetâ�,��"�s accompanying press conference. 

British Pound
The British pound has rallied for the fifth straight day against the US dollar and it is no surprise as UK data continues to surprise to the upside while US data surprises to the downside.  The GBP/USD currency pair is a perfect example of a strong â�,�“ weak pairing.  The US dollar has lost more value against the British pound than the Euro because the UK economy is performing far better than the Eurozone.  Consumer confidence continues to improve in the month of October as the housing market powers ahead.  The annualized pace of house price growth only slowed from 8.2 percent to 8.0 percent as the 3 month growth rate was the fastest pace since September 2004.  This follows yesterdayâ�,��"�s report that mortgage approvals hit the highest level in 18 months.  Furthermore, merger and acquisition flow continues to fuel strong demand for the British pound. 

Japanese Yen
Even though Japanese economic data was very weak last night, the Yen managed to stage a strong rally.  With yen shorts at record levels, there were no sellers left to take the currency even lower in response to last nightâ�,��"�s reports.  Instead, traders chose to react to the weaker US data, North Koreaâ�,��"�s agreement to rejoin nuclear talks as well as the lowest level in the US ten year yield spread over JGBs in 8 months.  There have been plenty of warnings that carry trades are at risk and perhaps the market is finally heeding that warning.  Meanwhile last night, household spending dropped by 6 percent, the biggest since December 2001.  The labor market also worsened with the jobless rate ticking higher from 4.1 percent to 3.2 percent.  Housing starts came out firmer, but small business confidence dipped into contractionary levels.  The Bank of Japan left interest rates unchanged at 0.25 percent and downgraded their core inflation forecast.  Fukui did remain slightly hawkish however as he talked of gradual rate hikes in the future. 

Commodity Currencies (CAD, AUD, NZD)
Commodity currencies are up across the board today as commodity prices rebound. Canada reported slightly stronger GDP growth in the month of August, but the Canadian dollar responded less to that than the late afternoon reversal in oil prices.  The New Zealand dollar continues to remain very strong, despite the countryâ�,��"�s Finance Ministerâ�,��"�s attempt at talking down the currency. Cullen said that the kiwi dollar was at â�,��"stubbornly high levelsâ�,� as interest rates continued to drive foreign demand for kiwi denominated investments. This is not the first time that Cullen has expressed dissatisfaction with the countryâ�,��"�s currency.  He did so last month on September 26 to be exact.  That was the same day that the NZD/USD topped out at 0.6725 and fell 158 pips in one day.  The market has barely reacted to the most recent comments, but only time will tell whether this will be a delayed reaction.  The Australian dollar has also been very strong as private sector credit prints in line.  Tonight we are expecting retail sales and the trade balance.  Judging from the recent strength in prior reports, tonightâ�,��"�s data should continue to reflect an improving economy.

Kathy Lien is the Chief Currency Strategist at FXCM.