1. Japanese Machine Orders
2. US Producer Price Index
3. US Advance Retail Sales

Japanese Machine Orders (NOV) (5:00 GMT, 0:00 EST)
Consensus: 5.2% (MoM); 3.2% (YoY)
Previous: 4.8% (MoM); 8.5% (YoY)

Outlook: Japanese machinery orders are expected to increase by 5.2 percent in November, marginally higher than the 4.8 percent surge reported in October. Lately, orders for machinery have been primarily driven by strong demand from automakers who are increasing capital spending in an effort to expand production and steal market share from the US producers. Higher wages and better job prospects are also help to fuel capital spending, which accounts for nearly 17% of GDP for the world's second largest economy. On the tail of weak consumer spending reports earlier this week, traders are looking for any kind of evidence that the country is finally emerging from a seven-year period of deflation. A bullish report will help support this theory, but should the number print much lower than expectations, faith in the Japanese economy is likely to waver.

Previous: Machinery orders for the month of October surged 4.8%, a sharp rebound from September's 10% decline. Private orders, excluding shipping and utilities, increased significantly as automakers continued to expand production and retailers made efforts to upgrade their stores. The two industries are helping to drive the longest expansion in nearly eight years, and capital spending continues to thrive. The large increase in October is another piece of supporting evidence that the Japanese economy may be turning itself around. Speculators believe that firms are increasing capital spending in anticipation of an increase in consumer spending. These effects should ultimately add up to the economy's return to inflation. The Bank of Japan has hinted that they are considering interest rate hikes in 2006, so the next few months of data will be particularly important for policymakers in deciding what monetary actions need to be taken.

U.S. Producer Price Index (DEC) (13:30 GMT, 8:30 EST)
Consensus: 0.4% (MoM); 4.9% (YoY)
Previous: -0.7% (MoM): 4.4% (YoY)

Outlook: The Producer Price Index is expected to increase by 0.4% in December, a sharp contrast from the previous month's reading of -0.7%. Last month's unexpected decline was a direct result of falling energy prices, which has been playing a major role in the month to month volatility of this report. Crude oil and natural gas futures have been declining since shortly after Hurricane Katrina, but prices increased ever so slightly in December. While this will have a positive effect on the total index, core inflation (excluding the volatile food and energy components) is expected to remain tame at 0.2% in December. While higher producer price inflation has been slow in seeping through to consumer price inflation, any unexpected increases in total or core PPI inflation are likely to cause speculation of an extension of the current streak of Fed rate hikes. The greenback has been very sensitive to such data lately, as the growing consensus appears to be that the Fed tightening cycle is about to come to an end.

Previous: Producer prices fell significantly in October, dropping an unexpected 0.7%, the largest amount since April 2003. Tame inflation seems to be the theme in the United States, as falling energy costs continue to filter out through the economy. In November, the price of gasoline fell 11%, natural gas dropped 0.5%, and heating oil tumbled more than 16% - causing the largest monthly drop for energy prices in two and a half years. Prices excluding the volatile energy and food components rose a meager 0.1%, which was less than expected. Surprisingly, the spike in energy prices earlier in the fall never led to a broad-based rise in inflation that many economists had anticipated. For the year, producer prices have risen 5.2%, with core inflation checking in at a modest 1.8% clip. The overall health of the US economy remains robust, and many people believe that the Federal Reserve will continue raising interest rates early in 2006. But the question on many traders' minds is when the Fed will indicate that rate hikes are coming to an end.

U.S. Advance Retail Sales (DEC) (13:30 GMT, 8:30 EST)
Consensus: 0.9%
Previous: 0.3%

Outlook:  Retail sales are expected to have increased by 0.9% in December, the largest monthly increase since July.  After three consecutive months of a 0.3% rise, December's surge is riding on the backbone of a projected blockbuster season in holiday sales.  Best Buy and Circuit City, the nations two largest consumer electronic outfits, both posted strong December sales last week.  Subsequently, automakers sold 17.2 million vehicles at an annual rate last month - the largest single increase since manufacturers offered enormous discounts in July.  Additionally, December's non-farm payrolls data led to the creation of nearly two million jobs in 2005, helping to propel worker earnings by 3.1% - the largest annual gain since 2002.  More jobs, rising incomes, and a drop in gasoline prices were the major themes as the year came to a close, helping to spur consumer confidence once again.  With retail sales data representing nearly half of consumer spending, which in turn accounts for 67% of economic growth, speculators will be watching the report with a keen eye as it may cause Fed policy makers to consider further tightening in 2006.

Previous:  Retail sales data in the month of November showed a 0.3% increase, matching precisely the increases seen in October and September.  Auto-dealers and parts stores helped fuel the increase, as sales jumped by 2.6% after a 1.3% decline in the previous month.  Additionally, consumer spending as a whole grew at a 4.2% clip in the third quarter, mostly driven by auto vehicle sales during a time of deep discounts in the summer.  Comparatively, analysts are predicting that 4th quarter spending slowed to a paltry 1.4%, the lowest level in nearly four years.  However, October's increase in jobs and hourly earnings suggest that Americans have more money to spend this year - which may boost consumer spending in the coming months.  This leaves the Federal Reserve with the daunting task of determining when the current interest rate cycle should come to an end.

Richard Lee is a Currency Strategist at FXCM.