Two Things Will Stop the Euro's Rise (page 2 of 2)

If that is followed by weakness in German retail sales, we could see some traders take profit on the Euro.

In terms of the ECB, there are no signs of concern amongst the central bank. In his speech today, Trichet simply touted the success of the euro and reiterated the need for the central bank to be independent.

The reason why we are paying so close attention to ECB comments is because back in 2004, when the Euro hit a record high of 1.3667, the currency topped when Trichet called the move "brutal".

Canadian Dollar Back at Parity

For a brief moment today, the Canadian dollar (CAD) was stronger than the US dollar as USD/CAD fell to a 31 year low of 0.9937.

It has been a great week for not only the CAD, but also the Australian and New Zealand dollars, which have rallied for four days straight. This strength is due to big moves in the commodity markets and overall US dollar weakness.

In the week ahead, the Canadian and New Zealand dollars could take on some action of their own with GDP figures expected from both countries. Growth is predicted to have slowed in New Zealand and accelerated in Canada. Watch out for industrial product and raw materials prices however since the strength of the Canadian dollar could bring down inflationary pressures.

Today, we had a big surprise in Canadian retail sales. Yesterday's jump in wholesale sales led everyone to believe that retail sales would be strong as well, but instead of rising, consumer spending actually dropped by 0.8 percent. Interestingly enough, this only put a minor dent on the CAD's rally.

Japanese Yen Falls to One Month Low

The Japanese yen fell to a one month low against all of the majors except for the British pound and US dollar. The only piece of Japanese data released overnight was the all industry activity index which was right in line with expectations. Carry trades have resumed their correlation with the Dow as the movements today reflect a minor return of risk appetite.

The bulk of Japanese data due out next week will be on Thursday, which is when we will receive labor market, consumer spending and inflation data. Most of these numbers are expected to be weak and not likely to help the yen recover its gains.

Bank of England Forced Into Action

It has been a tough week for the Bank of England. After standing aside when the credit turmoil unfolded in late July, the Bank of England has finally been forced into action.

Last week it bailed out Northern Rock and this week it infused more than $20bn into the banking system.

Central Bank Governor Mervyn King faced tough criticism for his late action, but he has defended himself by blaming legislation. Despite the problems at Northern Rock, the UK economy remains relatively healthy in comparison to the US economy.

Retail sales and money supply were stronger than expected. GDP, Housing and Consumer Confidence dominate the calendar next week. No big surprises are expected there.