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The buck is seeing demand at month-end, belying earlier talk of dollar supply at the London fixing. Cable is below 1.8200 and EUR/USD has fallen to fresh session lows in the 1.4650s. About the best we can offer on a day like today is that the base of the range toward 1.4550 is unlikely to be breached over the US holiday weekend as Chinese protection of barriers is expected. EUR/JPY continues to lose ground in the wake of moderating EU inflation data. 158.50/55 is solid support if losses extend. with that, we leave you to your own devises. Have a great long weekend.

EUR/JPY trades with a very heavy tone, below 160.00 as the liquid portion of the trading week draws to a close. US equities are soft as oil prices rise ahead of Gustav. Rumors of dollar selling at the month-ending fix made the rounds but they seem to have been contained to the USD/JPY portion of the market.

158.50 and 158.20 are solid supports on further weakness for the cross.

Consumer sentiment coninues to recover as gasoline prices fall. It came in at 63.0 in August, the highest in 5 months. EUR/USD trades near New York session lows around 1.4700.

The dollar is firming in the wake of strong Chicago PMI data. The market anticipated a dip back below 50 but instead was treated to a 57.9 outcome. Next up is Michigan consumer sentiment, seen around 62.0.

EUR/USD tested 1.4700 on the data.

Market News International is running one of their patented “ECB sources” stories. The story sees the ECB in neutral through the end of 2008, unable to ease because of outsized wage gains in certain EU states but unlikely to hike owing to economic weakness.

The ECB Governing Council is increasingly worried
about the eurozone’s rapidly cooling economy, but the inflation danger
is still too high to justify a shift towards easier monetary policy,
well-placed central banking sources have told Market News International.

The dip into the 1.4720s looks to have been sparked by the story. Prices have rebounded to 1.4750 soon after as asian and Russian bids were once again rumored on dips. That plus a $2.75 rally in oil is weighing on the buck. A large, powerful hurricane is forecast by the national hurricane center.

Asset managers tend to transact business at “fixings”, times in the market where there are published prices that the firms can use as a benchmark. The most popular of these fixings is the 11:00 am (NY Time) London fixing. These fixes are especially active at month-ends as passive fund managers (index funds) rebalance their currency portfolios. Today, the scuttlebutt is that these managers will be net dollar sellers across the board. These rumors are often self-serving, so be a bit cautious. I put it out there for your consideration but would not stake my life on the rumors.

Canada grew just 0.3% in Q2, Statscan reports. Dealers note steady sales of commodity currencies in recent sessions as global growth cools.  USD/CAD changes hands mid-range at 1.0508.

The buck is a shade weaker in the wake of personal income and spending data. As expected, the wind-down of economic stimulus checks played a role. Core PCE was firm at +2.4% y/y which will keep the Fed focused on inflation and hankering to tighen if the credit crunch ever eases to the extent to give it the opportunity.

CEP has a good preview of the income and spending data due at 8:30. Chicago PMI and Michigan consumer sentiment round out the slate at mid-morning. Once the 11:00 fixing is out of the way, look for volumes to shrink ahead of the long weekend.

Lots of to and fro with focus shifting from energy markets to the global inflation outlook and back. This morning the eurozone posted a drop in inflation in August to 3.8% m/m versus 4.0% the prior month. A few more months like that and the ECB will be able to drop its anti-inflation facade.

Gustav remains a major focus as it is projected to follow a Katrina-like path. Oil has rebounded $1.25 this morning to above $116.00.

Overnight the Japanese government released its first stimulus package in several years, to the tune of JPY 11.7 trln. Analysts are unimpressed.

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