The Unlovable Greenback
Are there any dollar bulls left? Certainly not at the Chicago Mercantile Exchange where the Commitment of Traders data showed euro longs at all time highs. It appears that the downtrodden buck couldnâ�,��"�t buy a rally if it tried. Last weekâ�,��"�s data preceding the NFPâ�,��"�s was all dollar positive with Personal Income rising 0.5% and non-farm productivity edging higher to 3.2% but every attempt by dollar longs to push the pair below the 1.2600 level was thwarted by dip buying euro longs. As we wrote on Friday â�,��"With momentum so overwhelmingly dollar bearish, no positive piece of US economic data has been able to provide anything but the most fleeting of support to the greenback over the past month. â�,��"

Fridayâ�,��"�s NFPâ�,��"�s were of course the nail in the coffin to any hopes that the greenback would bounce. The number missed badly printing at 138K versus 200K projected, despite new data sources such as the ADP survey forecasting stronger results. Yet not all was gloomy in the report. Wages rose by 0.5% vs. 0.3% suggesting that consumer spending will remain buoyant especially if gas recedes below $3/gallon. On that front news over the weekend that Iran is be willing to accept IAEA inspections may push crude lower next week. That along with an expected FOMC rate hike to 5% may trigger a retrace in this monster EUR/USD rally, providing dollar bulls with something to finally smile about.

Euro! Euro! Euro!
The euro continued its merry ride adding another 90 basis points against the greenback, although this was the smallest gain amongst the majors. The primary catalyst for the move was Thursday post meeting press conference by the ECB. Although the central bank chose to keeping EZ rates on hold, we wrote on Friday,â�,� â�,�˜Vigilanceâ�,��"� was the mantra of the day, with Mr. Trichet sounding more like a stern French general than the ECB president as he repeated the word several times over. Nevertheless, â�,��"vigilanceâ�,� was the code word FX traders were looking for since it essentially telegraphed to the market that ECB intends to raise rates by June.â�,�

On the economic front EZ continued to post steady results, although both PMI Services and Manufacturing were slightly below expectations. More disturbing to unabashed euro bulls was the â�,�“ 0.8% decline in retail spending which suggests the EZ consumer has not yet gotten the news that the region is in the midst of a recovery. Nevertheless, economics has not been the driver for euro gains for a long time, so the markets ignored the data, as the unit continued to gain from sustained dollar bearish sentiment. Next week a smattering of second tier reports is unlikely to provide the impetus to further euro rallies, as it will once again look to dollar news to take its next cue.

Back To Rate Speculation
A truncated week left the Japanese currency loosing ground against most of the majors. Before lethargy set in for the Golden week holiday starting Wednesday, the few economic indicators produced only range-bound trading that held through Thursday. Annual earnings through March edged lower 0.2%, sparking concerns over the sustainability of inflation in consumer goods â�,�“ a BoJ-imposed prerequisite to a rate hike.

Doomed to spend the rest of the week in slow, choppy trading, the yen-backed pairs actually received a sudden swell of bids that helped run the single currency higher across the board on Friday. The news behind the sudden move was two-fold. First, a member of the Bush administration cried foul over Japanese officialsâ�,��"� attempts to slow the yenâ�,��"�s appreciation against the dollar by reinterpreting the G-7 statement released two weeks ago. Further spurring demand for the unit were rumors that China may revalue the yuan next week ahead of the US Treasury report on currency manipulation. If these rumors are confirmed; a 300-pip move, like that on following the July 21st regime shift, could prove just a preview.

Can the Yen continue its fledgling run to 111? Possibly. But with Japanese exporters hedged to 110 through the end of 2006, such a rapid fall in the pair before even the half year mark is sure to create serious concern on the part of the Japanese policy makers. Therefore look to exporters fresh off the holiday week to try to stem the decline in the pair as Japan goes back to work.

Pound Sees Sky For Miles
Extending the previous weekâ�,��"�s rally, the British pound scored five additional days of gains against the greenback despite indicators that were less than enviable. When capital markets across the United Kingdom opened after the May Day holiday, traders seemed to fiercely bid the unit. Tuesday opened to a positive manufacturing PMI number and CBI trade report. Both numbers sat well for the economy reflecting positive sentiment from firms and consumers But aside from a services PMI figure released later in the week, the rest of the economic data printed nothing but red. Despite this fact, the currency pushed ahead, eventually taking out the big 1.85 figure on Thursday.

Next week will offer a slew of indicators to round our the UK economic picture. Producer prices paid and received are expected to show an inflationary pressures in the manufacturing sector in April, while a more dated industrial production number is forecasted to report a rebound in March. Trade figures will also hold a special place in tradersâ�,��"� calendars as the market looks to add up GDP injections and leakages. And what would a week of cable trading be without more rate speculation? Wednesdayâ�,��"�s BoE quarterly inflationary report will be culled for any clues as to whether Brownâ�,��"�s prediction that the next change in rates will be upward will be vindicated or rebutted.

Swissie Back On Track
The Swiss currency saw steady ascent against both the the euro and the dollar this week. The first indicator to hit the market was the manufacturing SVME read for April, which predictably responded to higher borrowing rates and oil at record highs by falling for the first month in four. This wasnâ�,��"�t enough to knock the Swissie off its pace though, with only 5 pips relinquished it its previous 300-pip run. Bidding was put back on track the following day when SNB President John-Pierre Roth said in an interview that monetary policy remains expansive, keeping the normalization process well at hand and rate hikes through the end of the year still on the board. On the back of these comments, the inflation indicator for the consumer basket recorded 1.1% annual growth, and though it was well below the official 2.0%-ceiling, it was interpreted as reason enough for Roth to stick to a steady diet of quarter point interest rate hikes each quarter.

Next weekâ�,��"�s calendar, although relatively light, contains several important indicators. First out of the gate will be the read on Aprilâ�,��"�s jobless rate. Expected to tick down once again to 3.4%, which would be the lowest level in 3 years. Furthering the health in the consumer sector will be the SECO measure of sentiment for the same month which is also expected to rise. Although next weeks trading against the dollar is likely to be dominated by FOMC announcement, against the euro the franc my continue its very impressive reversal if this data prints in line with expectations.

Boris Schlossberg is a Senior Currency Strategist at FXCM.