Fundamental Outlook for US Dollar: Neutral

- The annual rate of US CPI growth fell to the lowest level since 1950 in May
- US continuing jobless claims fell for the first time in 6 months during the first week of June
- US housing starts, building permits surged from their record lows during May

The US dollar ended week up against most of the majors, with the exception of the British pound and Japanese yen, but for what it’s worth, the currency really did little but consolidate. Looking to the DXY index, we see that the greenback’s decline on Friday was ultimately supported by a rising trendline near 80 connecting the June 3 and June 11 lows. With resistance looming just above at 81.35, this period of tight range-bound trade leaves the currency susceptible to breakouts this coming week, especially since there will be quite a bit of event risk on hand from the US.

On Tuesday, the National Association of Realtors (NAR) is anticipated to report that existing home sales rose for the second straight month at a rate of 2.6 percent in May to an annual pace of 4.80 million from 4.68 million. While not always a reliable leading indicator, there are encouraging signs that existing home sales could improve in line with expectations, as the Commerce Department reported on June 16 that housing starts and building permits rebounded from record lows.

On Wednesday morning, the release of US durable goods orders is projected to show a 0.8 percent decline in May following a 1.9 percent jump in April, and excluding transportation the index is forecasted to fall 0.5 percent, all of which would signal broad declines in domestic demand. Also on Wednesday at 14:15 ET, the Federal Open Market Committee (FOMC) is widely expected to leave the fed funds target range at 0.0 percent - 0.25 percent, and this should remain the case throughout much of the year. In fact, the FOMC started saying in January that they continue “to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time,” and they went on to say something similar in March and April. Furthermore, the last statement highlighted that the Committee's policy focus is to support the functioning of financial markets via quantitative easing (QE) and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. As long as we see these sorts of statements continue to be published, the news shouldn’t be too market-moving.

On Thursday, the third and final round of US Q1 GDP estimates are due to hit the wires, and the results could be market-moving if they miss expectations. At the time of writing, a Bloomberg News poll of economists reflected consensus forecasts for GDP is forecasted to go unrevised at -5.7 percent, which marks an improvement when compared to the Q4 2008 result of -6.3 percent. However, if Q1 GDP is revised higher, the news would likely provide a huge boost to risk appetite as it make the US economy appear to be in a better position to stage a recovery later in the year. On the other hand, downward revisions would have the potential to take FX carry trades and equities lower.

Finally, on Friday, personal income and personal spending results for the month of May are anticipated to yield improvements, but traders should be skeptical of the income result: past increases have been purely the result of rising transfer payments, which include retirement, disability, and employment insurance, while wage and salary compensation has either fallen or stagnated since September 2008.

Jamie Saettele is a Technical Currency Analyst for FXCM.