Morning Currency Wrap for Tuesday January 4, 2011

Spring Is In The Air, For Today Anyway  - Risk appetite is back on, which means the USD is down across the board on upbeat euro zone economic news and on top of yesterday's U.S. economic data pointing to springtime feel. Euro zone purchasing managers' index (PMI) was revised upwards on Monday from the earlier flash estimate, indicating a pick up in the region's growth momentum. The Euro also received a boost on comments from a Chinese official, who said on Monday the country would continue buying Spanish debt. As I mentioned in the past, it is in the best interest of China to have a viable alternative to the USD so they will continue to support the euro zone with bond purchases. Yesterday's reports out of the U.S. continue to add to a recent string of encouraging data, which demonstrates that the economy is slowly and steadily improving. Yesterday, the ISM index rose to 57 in December from 56.6 a month earlier, which marked the 17th month of growth in manufacturing and a separate report showed that construction spending picked up in November to its best level in five months. For the Euro, the next couple of months will be crucial due to an estimated 150-200 billion Euros of government bonds are scheduled be issued by euro zone countries, some of whom are struggling with rising budget deficits and higher borrowing costs. In the U.S., this week's main focus will be Friday's U.S. nonfarm payrolls, which are seen rising by 126,000 in December, and U.S. Federal Reserve Chairman Ben Bernanke's congressional testimony and today's release of the minutes of the Federal Open Market Committee's Dec. 14 meeting. Elsewhere, the GBP was up across the board as data showed UK manufacturing activity grew robustly while the AUD fell more than 1% as massive flooding in north-east Australia fueled worries over coal production. In Canada, the CAD is firm but slightly down after hitting its strongest level since May 2008 in yesterday's trading action. The CAD continues to hold above parity on firmer oil prices and better economic news out of the U.S., which is Canada's largest trading partner. This week's main driver with be the domestic jobs report on Friday.