US Dollar
The US dollar, and currency market as a whole, will be given its first true chance tomorrow to establish whether volatility has really returned.  Though the greenback has proven market moving on more than one occasion since the surprise return of volatility during the low liquidity environment two weeks ago, Fridayâ�,��"�s NFPs will act as the fundamental litmus test.  Heading into the metaphorical quiet before the storm, traders will ponder over the number of employment-related indicators that have hit the wires in recent days in order to best position themselves for landfall. The general consensus has already been split by a number of reliable indicators.  For those predicting the current 100,000 forecast by economist is over shooting it, the employment component of the November ISM manufacturing report has shown weakening trends. On the other hand, the services equivalent of the aforementioned report, the ADP private payrolls and Challenger layoff indicator help to counter balance with positive showings of their own. The most recent survey to throw its hat into the ring was todayâ�,��"�s weekly claims reports. Through the week ending December 2nd, new filings for unemployment benefits eased 34,000 to 358,000.  Despite the obvious contraction though, the overall level is considerably higher than the weekly figures in October and even the first half of November. While the market was tuning into the jobs report tomorrow, one more release was factoring into the ever-evolving valuation of the dollar.  Consumer credit, tracking non-mortgage loans to individuals, fell $1.2 billion in October.  A mirror of the initial print for September, this was the biggest drop in borrowing since 1992 as demand for autos wanes.

Euro and Swiss Franc
The Euro stayed relatively flat through todayâ�,��"�s trade, as ECB commentary following the widely expected 25 basis point rate hike provided few clues as to the future of European interest rates. Central bank Governor Trichet was slightly hawkish in highlighting that inflation risks remained elevated and that monetary policy remains â�,��"accommodativeâ�,�, but he dropped the key â�,��"strong vigilanceâ�,� phrase that many Euro bulls had hoped for. The net result was to leave markets guessing as to whether the bank would raise rates in the short term, with interest rate futures and Euro currency pairs fluctuating wildly on every nuance in his words. Likewise significant, Trichet dodged questions concerning the Euroâ�,��"�s torrid appreciation, commenting only that â�,��"excess volatilityâ�,� in currency markets remains unfavorable to stable economic growth. Markets continue to price in a further rate hike through Q1 2007, but risks may remain to the downside if economic data does not continue strongly. Looking to Swiss markets, the morningâ�,��"�s news provided further reason for higher SNB interest rates, with unemployment surprisingly falling to fresh 4-year lows. CHF pairs stayed relatively unchanged, however, with Swissie traders waiting for the actual SNB rate announcement and end-of-year news conference exactly one week from today.

British Pound
Sterling fell for the third consecutive day, with soft third-party UK GDP figures and Bank of England inaction allowing other major currencies to regain ground. Last nightâ�,��"�s NIESR GDP estimates showed that growth cooled to 0.6 percent through three months ending November. Though such unofficial figures have little influence over actual monetary policy, it is important to note that the headline number has only continued lower after hitting 0.8 percent through August. This morningâ�,��"�s BoE announcement provided no clarification of trends, with the bankâ�,��"�s inaction on rates leaving traders to wait for the minutes of its recent meeting due on the 20th of this month. Current interest rate forward have priced in another 25 basis points of tightening through the first quarter of 2007. This likely leaves downside risks for the Pound, with any weak data or dovish commentary to cause potentially sharp retracements after its torrid ascent. 

Japanese Yen
Yen traders showed little concern over recently hawkish BoJ commentary, sending the Japanese currency weaker and continuing to set higher lows on USDJPY intraday charts. Dealers cited short covering as the main source of the bounce, however, with speculators cutting risk exposure ahead of tomorrowâ�,��"�s key US labor release. Currency price action gave few clues as to expectations leading into both tonightâ�,��"�s final GDP revision and tomorrowâ�,��"�s US NFPâ�,��"�s. With JGB yields actually gaining on the day, however, speculators were not shy to place wagers on rising Japanese interest rates through the medium term. This, coupled with flat US yields on the day left the US Treasury-JGB 10-year spread to fresh recent lows. The weakening of the US yield advantage points to a continuation of recent carry trade unwind, with risks remaining to the downside for the USDJPY pair.

Commodity Currencies (CAD, AUD, NZD)
It is not often that central bank governors make passive-aggressive threats towards their native currencies; so when one weighs in, the market usually responds.  In a television interview, Reserve Bank of New Zealand governor Alan Bollard said that if the national currency became â�,��"exceptionally and unjustifiably highâ�,� they would use their tools to intervene. The kiwiâ�,��"�s reaction to these comments was short lived however as policy groupâ�,��"�s ability to adjust the exchange rate was already known. Only time will tell whether these remarks were cautionary or merely the answer to a well-placed question.  Elsewhere, the Australian economic calendar was the one within the commodity block releasing market-worthy indicators. The only negative piece of data coming off the wires was the AiG Performance of Construction index for November.  According to the breakdown, the biggest hit was felt in employment.  This, interestingly enough, contrasted with the national employment report also released today which offered a 36,200 person addition to payrolls for the same month.  With the boost, the jobless rate was able to hold at a 30-year low 4.6 percent.

Kathy Lien is the Chief Currency Strategist at FXCM.