Traders Look To Thin Week, Durable Goods And Housing

US Dollar

Dollar strength was absent on the day as traders sided with the growing bias that further rate hike considerations will likely be halted in the world's largest economy. Following last week's rather lackluster schedule of economic data, the decision continues to be dependant on data that seems to disappointing even the consensus figures, let alone market speculation.

That very sentiment loomed over the currency markets, and more specifically the New York session as traders continued to bid the greenback lower. The only piece of data likely to offer some reprieve will be this week's release of the durable goods orders report. Although expected to decline against the consensus and 2.9 percent previous climb, the report should continue to show positive growth in the core figure.

The expected gain may be enough to reverse dollar weakness in the near term, however, further justification would likely be needed for a push higher in favor of dollar bulls. Additionally, plenty of housing sector data will be expected in the rather thinly scheduled week. Both sets of figures are likely to suggest a further pullback in the sector as consumers continue to remain cautious and the most recent string of seventeen increases work their way throughout the economy.

However, taking the cake, traders will be focusing on plenty of Federal Reserve rhetoric in keeping the markets guessing. Scheduled for tomorrow, Federal Reserve Bank of Atlanta's Jack Guynn will be speaking. With the fact that Guynn does have voting rights among the Federal Open Market Committee's overall decision, the market will likely key in on any hawkish comments that may surface ahead of Chairman Ben Bernanke on Friday.

Specifically, Bernanke will likely heed some suggestions when he speaks at the Fed Symposium in Wyoming.

Euro

Growth in the Euro zone boosted other wise dollar pessimism on the day with the trade balance report being released far more positive than most had anticipated. Expected to remain in a 1 billion Euro deficit, the balance of trade printed at a 2 billion Euro surplus. Boosted in the month of June, the report shows that the region is experiencing accelerated growth in light of higher crude oil and commodity prices even as consumer demand and spending remain weaker than policy officials would like to see.

Improvements in the German deficit underpinned the figure with export growth continuing to bolster a rather tepid overall recovery. Subsequently, the report is definitive fodder for interest rate hawks as proponents continue to cite higher inflationary risks due to commodity prices and upticks in manufacturing and the exporting market throughout the economy.

Now with evidence shown through this morning's report, the same interests are magnified as speculators are likely to see a push for higher interest rates in the short term. Currently, future traders are betting on the likelihood, pricing in a probable two more rate hikes before the year end.

However, as before, the notion remains tentative as central bankers are likely to concentrate on the weak consumer sentiment prevailing in the market along with still high unemployment rates. Here, raise rates too high and consumers will likely remain on the sidelines, leaving exports as the only "go to" sector in providing expansion in the third and fourth quarter.

The only consideration, it seems, is the imminent retest of the 1.2900 figure as ECB jawboning is likely to cap any fundamentalist foray into Euro longs.

British Pound

The British pound posted the biggest advance against the benchmark dollar on the day despite data that would suggest otherwise. Issuing the first housing read for the month of August, the Rightmove House Price index reported the average list price for the four weeks ending August 11th dropped 1.6 percent to £214,040.

Not only was this the first decline since December, but it was also the biggest one-month drop since November of 2004. A spokesperson for Rightmove, the largest real estate website in the UK, suggested housing prices had already peaked for the year - referring to the record high £217,580 realized last month. These predictions seem well founded give the Bank of England's decision to raise its overnight lending rate for the first time in two years on August 3rd to 4.75 percent.

Any doubt that the housing market responds noticeably to shifts in lending rates is put to rest when reviewing the statistics following the central bank's decision to cut the overnight cash rate by a quarter point last year. Since that reduction, the average price of homes rose eight out of the twelve months that followed.

Going forward, Britons will have to contend with speculation buzzing in the markets that the central bank will once again move positively on rates in order to contain inflation. On August 9th, BoE Governor Mervyn King indicated that lending rates may require further tightening as inflation accelerates as much as a whole percentage point above their target in the next two quarter.

Japanese Yen

Contradicting Friday's Nationwide and Tokyo Department store sales positive moves, July same-store convenience sales dropped 5.2 percent. The decline was the largest in three years and put a quick end to the short-lived growth seen just the month before. Domestic demand has yet to fully take shape in Japan even as wages jumped 1.0 percent and employment prospects rose to a 14-year high in June.

Over the same period of time, consumer confidence remained net pessimistic while household sales fell for the sixth consecutive month by 2.2 percent. Consumer spending will become increasingly important in the coming months as signs of global growth continue to print numbers indicative of decreased demand for Japanese goods.

The contributions to economic expansion will be crucial for the Bank of Japan's fledgling cycle of higher interest rates. On the topic of lending rates, Japanese Foreign Minister Taro Aso announced his candidacy in the upcoming September elections for the LPD presidency. One of the central points of his platform that was drawing the attention of the FX market was his firm stance against the BoJ increasing lending rates.