We should remain focused on the major underlying themes. This is a gradual shift from concerns about the health of the global financial system to the impact of tighter lending conditions, not only for real estate. However, real estate remains a pillar in the foundation to economic contraction. USD and GBP have been hit hardest by financial stability concerns. This is due to the named regions having greater than average resilience on the financial sector. Last weeks Q2 UK GDP release suggests the economy may already be contracting. As a reminder... What drives currency valuations? Interest Rates and Economic Growth! Eurozone showed weak knees on a worse than expected German IFO survey and in each of the major components of the survey. Furthermore, German PMI fell to a near three year low, weakening the picture confirmed by the downside surprise in IFO. Watch the IFO as it often provides root to significant trend shifts in the EUR, reflecting the state of the German economy and outlook on rates and rate spreads. Recent events should soften EUR flows, but less likely of a directional shift altogether. Euroland inflation is peaking, which would normally result in interest rate cuts, but its too soon to tone down the inflation fighting rhetoric, for now.

In the US, the economic data haven't deteriorated as much as feared, near term. US financial stocks are finding support. The FED is talking up rates, but i still call their bluff on that one, as economic down-move is too firm. That is apparent as i am traveling the beautiful Oregon Coast this week and have observed a plethora of ocean front homes for sale, mostly "in-state" tourists, although some may be car rentals, but the local business owners tell me there are more regional tourists than previous years and fewer from distant parts. I'm curious about who is going to buy all the homes.

Consider selling GBP on any sign of USD strength, as the only factor supporting GBP is USD weakness. GBP is behind the curve, but will catch up over the next six months. GBP/USD is grinding lower as evidenced by the technicals.

AUD/JPY is a personal favorite, so i will be watching building approvals closely in light of recent events concerning writedowns of ANZ Bank and NAB and considering real estate is playing a central role in rates and economic growth.

Friday's ISM and Non Farm Employment Change and Employment rate at offset hours will draw in traders are their peril, but may hint at a near term directional change for the patient. NFP has the ability to stuff up a few trading days, particularly in thin August trading. Market volume thins out leading into the indicators, so add to the fact "time of year" will exonentiate the reaction.