The EUR/USD is on a tear this morning on the back of shockingly weak Chicago PMI numbers. The currency pair soared above 1.31, taking out stops above 1.3120 and then 1.3150. For the Federal Reserve, who meets later this week, the continual disappointment in U.S. data weakens the case for tapering asset purchases. We don’t expect the discussion about varying QE to make its way into this month’s FOMC statement but when the minutes are released, we should see less support and more skepticism about changing the country’s asset purchase program. As a result, the U.S. dollar has traded lower against all of the major currencies this morning with USD/JPY dropping to its lowest level in nearly 2 weeks.

According to the latest report, manufacturing conditions in the Chicago region contracted for the first time in 3.5 years. The index dropped to 49.0 from 52.4 in the month of April hitting its lowest level since September 2009. A reading as weak as the one we have seen today reminds us of recessionary conditions and while one monthly release doesn’t make a trend the data confirms that the pace of the U.S. recovery has slowed. The activity reading was so weak that investors completely ignored the jump in consumer confidence reported 15 minutes later. According to the conference board, consumer sentiment hit its highest level in 7 months, which should have been good news for the greenback but this is a sentiment indicator whereas the Chicago PMI index is an activity indicator and therefore a more reliable reflection of how the U.S. economy is doing. Between the drop in the Chicago PMI, Philly Fed and Empire State manufacturing surveys, we are also looking at a potential miss in tomorrow’s ISM manufacturing report.

Up North, the Canadian economy expanded by 0.3% in the month of February, matching the upwardly revised pace of growth enjoyed in January. On an annualized basis, this brought GDP up to 1.7% from 1.1%, which helped to drive the Canadian dollar sharply higher against all of the major currencies. The outperformance of the Canadian economy and the recent rebound in oil prices should help the loonie sustain its gains with USD/CAD aiming for a test of parity (1.0).

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