An exceedingly slow night of trade in the currency markets with the euro, yen and pound tracing out miniscule 30 point ranges as traders essentially remained on the sidelines preparing for the marquee event of the week – the US Non-Farm payrolls report due Friday at 12:30 GMT. As we noted in our NFP preview, “Healthy labor markets remain key to the dollar bullish case. With housing continuing its slow motion meltdown which is now starting to seep into retail sales new jobs will be the primary determinant of fresh consumer demand which in turn will be critical to any future US economic growth.”

Today, however attention was turned to the European labor markets and the data there was decidedly mixed. Yesterday’s French data was right in line with unemployment rolls reduced by -20K but today’s German unemployment figures disappointed actually generating 3K new rolls versus expectations of a -20K reduction. This news along with the much weaker then expected Retail PMI figures on Wednesday suggests that EZ consumer demand remains problematic and that employers in the 13 member region may be hesitant to expand payrolls until they see stronger evidence of retail spending. To that end tonight’s German Retail Sales figures will be a key piece of data for the market to consider as traders begin to handicap ECB’s next move after the expected rate hike next week.

In Japan, another day of disappointment as labor cash earning declined for the fifth consecutive month tempering some of the hope that the Japanese recovery is filtering down to the consumer level. The report was particularly vexing to yen bulls in light of the fact that Monday’s employment figures showed a significant improvement. However, a large majority of the jobs created were of the temporary variety, which typically pay less then permanent positions. Therefore, while jobs in Japan appear plentiful, wages are contracting capping the recovery of an economy that is more than 60% driven by the consumer. The Japanese monetary authorities continued to refer to the idea of gradual improvement, but to the currency market’s ears that rhetoric sounded like continued halt interest rate front. With Shanghai recovering from yesterday’s sell off, risk aversion receded from the investment landscape and yen was sold hard once again on the carry trade especially against the high yielding commodity currencies. The AUDJPY cross traded above the 100 level once again and CADJPY rose to multi-year highs at 113.75

Boris Schlossberg is a Senior Currency Strategist at FXCM.