Forex.com's research director Jane Foley offers today's global outlook.

Stronger US economic data yesterday served as a reminder that whilst the pace of the US recovery has clearly moderated it remains on an expansionary trajectory.

It is by no means a foregone conclusion that the Federal Reserve (Fed) will resort to further monetary policy easing and in the absence of a shockingly poor payrolls report tomorrow, it is likely that the Fed will not act on August 10.

The US dollar was able to claw back additional ground against the euro early in the London session with the gains extending to the 1.3120/25 area this morning. A bounce ensued with the euro recovering back above 1.3200.

Tomorrow’s payrolls data is now a clear focus for the market. Following yesterday’s fairly aggressive position adjustment some consolidation ahead of this release is possible though speculation that Trichet may confirm that the European Central Bank (ECB) will continue to withdraw special liquidity provisions is giving the euro a lift into the ECB’s press conference this afternoon.
 
Last week, the bond purchases of the ECB dropped to just £67 million (€81 million). The lack of activity in this program over the past couple of weeks indicates that this support is being drawn to a close.

There is little chance that the ECB will hike interest rates before the middle of next year but it seems increasingly likely that the ECB will continue to phase out extra liquidity measures introduced as a result of the financial crisis.
This morning's release of better than expected German Jun factory order at 3.2 per cent month-on-month follows recent strength in Germany’s IFO survey and declines in unemployment and should heighten the confidence of the ECB.

Any confirmation from ECB president Trichet at this afternoon’s press conference that the ECB will hasten the pace of policy ‘normalisation’ could create an additional flurry of euro buying this afternoon.  However, it is likely that dollar buyers will contain the upside for €/$ at least until the outcome of tomorrow payrolls report is know.
 
While the Bank of England has left the door open for more quantitative easing (QE), inflation has not moderated sufficiently for further QE to be announced.  In any case the better than expected performance of the UK economy in the second quarter has relieved some of the pressure for the Bank to act again soon. The release of the Quarterly Inflation Report next week will be keenly watched.

The Candadian dollar has been bid this morning following talk of potential merger & acquisition activity.  The Canadian dollar has outperformed both the Australian and New Zealand dollars. Soft New Zealand labour market data overnight drove home last week’s warnings from the Royal Bank of New Zealand that the trajectory of rate hikes would be moderate going forward. The New Zealand unemployment rate rose to 6.8 per cent in the second quarter from 6.2 per cent in the first quarter 1 despite a slight fall in the participation rate. 
 
US Initial claims this afternoon will whet the appetite further ahead of tomorrow’s payrolls release but the ECB press conference is the real focus today.