The Greenback Corrects Localy.

It has been a long time since we have seen a broad based greenback rally, including against the JPY, where despite a widespread liquidation of carry trades, the USD/JPY barely budged.
The USD rose yesterday despite a surprise drop in the ISM non-manufacturing index. Trading was volatile largely on the back of a significant contraction in ISM services figures which came in at 41.9, the lowest reading since Oct 2001.
That intensifies concerns of a recession in the U.S. economy, pressuring the Fed to cut rates further. Currently, the Fed Fund Futures are pricing a 70% chance of another 50bp cut next month.
Along with this, it’s important to mention that there are signs in the FOMC policy statement from last week according to which, the Fed may moderate its aggressive policy actions. Nevertheless, if the U.S. financial markets will destabilize once again, there is no doubt that Federal Reserve will cut again. The U.S. economy is in trouble and it seems as if the recession has hit. The continuing deterioration of the labor market, housing market and now the service sector, leaves little doubt that the biggest economy is falling into a recession. As for today’s’ U.S. calendar, expect Nonfarm Productivity and Unit Labor Costs indices on tap. Both of these indicators are due to be released at 13:30 GMT. Later today, the Philadelphia Fed President Plosser is scheduled to deliver a speech. It appears that the greenback might continue yesterday’s correction move before probably initiating another bearish move.