FX Update : USD

The euro traded in a 1.3309-68 range against the USD while maintaining a fairly bid tone against the JPY (1.5376-1.5418). Market News report, French Trade Minister Christine Lagarde said a strong euro was "penalising and worrying" French exporters to Asia. "At the current level, the euro penalises exporters from the eurozone," Lagarde told AFP Sunday after arriving from Japan for a visit to India.

Meanwhile, Fed member Kohn softened his stance, commenting that inflation trends had shifted from "up to down". Should EURUSD continue to be driven by softer US data, we expect the EUR to rise for now.

Historically, the manufacturing ISM survey, the November index fell to 49.5 , has been an important variable in the Fed's monetary policy reaction function. During the Greenspan years, the Fed typically eased when the ISM index fell to around 49 or below. The current 49.5 level is thus on the border of easing territory at least. More weakening in the labor market data will still be needed, however."

Ahead of next week's FOMC meeting, the poor run of data is likely to make the market even more sensitive to this Thursday's initial claims report and Friday's employment data. We are forecasting a below trend 90k rise in non-farm payrolls and a rise in the unemployment rate, to 4.6% from 4.4% - all suggesting a slowing US economy and Fed easing in the new year.

Also of note, this past week's GDP report showed a downward revision to wage income, which implies that this coming week's unit labor costs numbers for Q3 will also be revised lower, with the y/y rate falling sharply to 3.3% from 5.3% previously. This should re-enforce perceptions that price pressures are subdued.

Today, we expect the pending home sales index to remain subdued in October , consistent with the near-flat trend in mortgage applications recently. CNBC will interview Chicago Fed President Moskow at 1400GMT.