US Dollar
The currency market has been relatively quiet today with little meaningful price action except for the movements in the commodity currencies.  The US dollar is mostly unchanged against the majors aside from a mild rally against the Japanese Yen.  Both the first quarter current account balance and the University of Michigan consumer confidence surveys were stronger than expected.  The current account deficit narrowed from US$223.1 billion to US$208.7 billion thanks to higher US overseas purchases and foreign investment in the US.  Though encouraging, it is a bit distorting since net foreign purchases in the first quarter were decent.  A first look at demand in the beginning of the second quarter is less encouraging.  If you recall, yesterday we learned that foreigners only purchased $46.68 billion worth of US investments in April, the weakest accumulation since March 2005.  In addition, the increase in income on overseas investments is telling us that US investors are making more income on their international investments over their domestic investments, which is not necessarily good for the US dollar because it means that along with foreigners buying less US investments, US investors are also finding more attractive opportunities abroad.  Thankfully, the rise in US consumer confidence was less ambiguous as consumers were cheerier following stabilizing gasoline prices in the month of June.  With crude prices still hanging below $70 a barrel, softer prices could continue to boost confidence for a while longer.  Unlike this past week, the economic calendar for the week ahead is relatively empty which means that we could be setting up for a week of consolidation.  The continued hawkish comments from Fed officials should keep dollar strength dominant.  At the same time, prices in the EUR/USD are holding up exceptionally well above the 1.25 level.  Therefore in all likelihood, we could be looking at a 1.2550-1.2750 week. 

Euro
After sliding down to a low of 1.2530 on Tuesday, the EUR/USD has ended the week unchanged.  The currency pair first lost ground after the stronger US numbers, but quietly recuperated its losses on news that Germany has gained permission from the Paris Club to repay all of its debt early.  Russia owes the Paris Club of nations $22 billion in addition to a 700 million euro compensation to Germany for lost revenue streams.  Although Russia already has some Euros in their reserves, repayment of the debt will probably involve more accumulation of Euros, especially for the special payment to Germany.  Therefore over the long term, this is another positive for Euro in an environment where other than the US Federal Reserveââ,¬â"¢s interest rate hikes, there is little going for the US dollar.  In the week ahead, there are more important Eurozone numbers than there are US numbers.  We are expecting the Eurozone trade balance, German Producer Prices and French consumer spending.  All three reports are forecasted to show weakness in the Eurozone economy instead of growth.  However, none of them are expected to shift the central bankââ,¬â"¢s stance on interest rates which mean that they could have only minimal impact on the currency.   

British Pound
Like the Euro, the British pound has ended unchanged for the week. Looking back over the past weekââ,¬â"¢s solid run of data, we understand why there has been no meaningful price action.  Economic data was mixed with core consumer prices showing signs of slowing, retail sales increasing and housing market indicators improving.  There was no reason to believe that the central bank would shift their neutral stance anytime soon and we expect to see the same message from the economic data due out next week.  The Rightmove housing gauge will offer the most up to date read on the sectorââ,¬â"¢s health while the minutes from the MPCââ,¬â"¢s June 8th meeting will reveal whether a hike could be on the table before the end of year. In contrast, the USââ,¬â"¢ protectionism measures continue to benefit the UK at the expense of the US.  UK equity investorsââ,¬â"¢ fears over the possible transatlantic merger between the NYSE and Euronext was put to rest after officials assured that European firms would not have to conform to US Sarbanes-Oxley rules.

Japanese Yen
Given no new Japanese economic data releases on the day, markets turned their attention to ongoing domestic political turmoil and newly announced changes in Chinese monetary policy. Troubles persisted for the Bank of Japanââ,¬â"¢s Governor Fukui as opponents continued to call for his resignation due to his involvement in an insider trading scandal. In a statement today, Fukui promised lawmakers that he would surrender documents revealing the profits he made last year in an investment fund operated by a man arrested for insider trading. Despite the scandalââ,¬â"¢s tangible effects on Japanese markets, however, the Governor asserted that it would in no way alter the BoJââ,¬â"¢s commitment to gradually bring the ZIRP to an end. In related monetary policy news, officials from the PBOC declared that they would tighten Chinese money supply, raising bank reserve requirements by 0.5%. The action comes in response to an M3 growth rate 3.5% above target at 19.5%, and many strategists claim that this the first step in allowing a faster appreciation in the Yuan. FX markets took the news as Yen bearish, as any slowdown in Chinaââ,¬â"¢s breakneck economic expansion would translate to less trade with Japan. Moving forward, traders next anticipate the coming weekââ,¬â"¢s Trade Balance data on the 19th and BoJ meeting minutes on the 20th. Though we suspect that the Trade Balance will have relatively little effect on currency markets at this point, any surprising revelations in the transcript of the BoJââ,¬â"¢s most recent meeting could cause large fluctuation in currency prices.

Kathy Lien is the Chief Currency Strategist at FXCM.