• Snow Falls to the Ground and So Does the Dollar
• Euro Rebounds on Airbus Order
• Yen Loses Ground on Lack of Concern by Government Officials

US Dollar
With last week's US non-farm payrolls report, ECB and G7 meetings now behind us, it may be natural to assume that the markets will be quieting down for the remainder of the year.  However the dollar may not be ready to go into holiday mode just yet.  The US calendar this week is light, but that does not undermine the fact that we have four central banks meeting to decide on interest rates during this week.  Two out of the four central banks, namely the Bank of Canada and the Reserve Bank of New Zealand are slated to increase interest rates after having remained on hold in the month of November.  Both central banks raised rates in October and at the time blatantly expressed their intention to raise rates again later in the year.  Delivering on their promise, we have seen the Canadian and New Zealand dollars both climb higher against the US dollar over the past two weeks.  Exacerbating the rally in both of these commodity currencies was the move back above $60 a barrel for the price of oil, which is the first time it has traded above that level in seven weeks.  As we have mentioned repeatedly, once the temperatures and snow begins to drop, so will the dollar.  Traders are finally waking up to notion that eventually rising energy prices will hit the pocketbooks of US consumers.  As mentioned in this morning's Market Brief, with higher energy bills, a larger minimum payment for credit cards and growing mortgage payments, it remains to be seen for how much longer the spending habits of Joe or Jane can continue holding up the US economy.  As the weather gets colder and colder, we expect oil and other energy prices to increase higher and higher.  If so, a continued rebound may be in the cards for the Euro. Meanwhile, the only piece of US data released today was the ISM non-manufacturing survey. The index pulled back modestly, but did little to move the market since it remains solidly in expansionary territory.  The prices paid component dipped slightly, but the employment index rose smartly. 

Euro
Slightly better Eurozone data helped to push the region's currency higher against the dollar.  Service sector PMI for the entire region rose to 55.2 from 54.9. The market had actually expected the index to dip, which would have suggested that the sector's growth actually slowed last month.  However the breakdown of the report shows that Germany and France actually dragged the index lower instead of contributing to the acceleration, although both declines were less than expected.  The growth in Spain and Italy's service sectors on the other hand, more than compensated for the contraction in Germany and France's.  Yet with retail sales for the month of October coming out in line on a monthly basis, but rising less than expected on an annualized basis, economic data itself was probably not strong enough to induce the Euro rally. Instead, according to the wires, the Euro got a boost when Airbus sealed a big deal with China, who ordered 15 Aircrafts from the Eurozone conglomerate.  Unlike the US, there is quite a good deal of key European data on the calendar this week.  Most of the finance ministers of Europe are attending a Euro Group meeting early this week.  Comments are already filtering out from the meeting with most of the ministers downplaying the effect that the one rate hike would have on the economy and then writing off the ECB's latest move as a one-off event. 

British Pound
The British pound charged higher for the fourth consecutive trading session with little behind the move.  The UK Treasury downgraded their growth forecasts for 2005 and 2006 with a corresponding increase in net borrowing.  The pound sold off modestly on the report, but the losses were short-lived.  Instead, some traders are latching onto the rumored leak of the BRC retail sales data.  According to unconfirmed reports by the Sunday Telegraph, retail sales for the month of November increased 0.3%.  If this report becomes confirmed in tomorrow's release, it would be a sharp rise from the -0.2% fall reported in October.  Later this week, the Bank of England is slated to meet to discuss possible changes to monetary policy.  After lowering rates back in August, the central bank is expected to stay on hold for the remainder of the year.  As such, it remains quite questionable as to what is really fueling the current sterling rally.

Japanese Yen
Watching just USD/JPY, it would seem that there was little action in the Japanese Yen today.  However, against every other currency except for the dollar, the Japanese yen hit fresh lows.  EUR/JPY reached a new record high today, while similarly strong moves were seen in the yen against the Australian dollar, Canadian dollar, Swiss franc and British pound.  Hit by rising oil prices and the government's lack of concern for their currency's weakness, yen bears seem to have been given the green light to pound the currency even lower.  Against the dollar, the move seems to be a bit more restrained as the greenback faces its own woes.  On a broader scope, there are still many touting the overall recovery in Japan.  In Morgan Stanley's looking ahead to 2007 report, they believe that the market will begin shifting its attention back to Japan's recovery next year.  Quoting Stephen Roach, "If the Japan story is for real -- and I suspect it is -- there are powerful fundamental reasons why the yen should begin to appreciate.  With Japan having the world's largest current account surplus, that possibility is even more likely." 

Kathy Lien is the Chief Currency Strategist at FXCM.