Brother Can You Spare a Billion?
The week ended pretty much where it started with EUR/USD posting a miniscule loss 4 basis points. The placid results however hid a fair degree of volatility in the pair as dollar bulls made a concerted effort to gun for the 1.2500 level after the â�,��"hotâ�,� PPI and CPI numbers both of which showed that inflation was inching higher than expected. The producer and consumer gauges rose 0.3% versus 0.2% at the core level.  Much to the dismay of dollar bulls however, Wednesdayâ�,��"�s CPI results actually caused a rally in the pair after a brief foray in the 1.2530 zone. Speculation ran rampant about the causes for such seemingly contradictory price action. The primary reason for Wednesdayâ�,��"�s whipsaw was attributed to reports of a large double no touch option at the 1.25-1.30 barriers defended aggressively by the Bank of China. Whether this was true or not cannot be verified with a total certainty, however, Wednesdayâ�,��"�s action definitely stymied dollar longs and Thursday TIC results only exacerbated their problems.  As we wrote on Friday, â�,��"With TICS printing only $46.7 Billion surplus against expectations of $60 Billion the news stopped the two week dollar rally dead in its tracks.  According to market experts, US needs to attract approximately $65-$70 Billion worth of capital per month in order to finance its ever burgeoning Current Account and Trade deficits. If yesterdayâ�,��"�s report was the start of a trend rather than a one off event, the news threatens to undermine the strength of the greenback as financing difficulties will begin to trump all other considerations in the currency market, including further rate hikes by the Fed. What  will be the value of highUS interest rates if US cannot attract sufficient capital to finance its deficits?â�,�

Next week the calendar is extraordinarily quiet, with only the Housing data at the front of the week LEI Wednesday and Durable Goods on Friday.  None of the expectations look particularly dollar bullish with LEI specifically expected to drop â�,�“0.4% from â�,�“0.1% the month prior. Unless there is some extremely bad news from the other side of the Atlantic, the EUR/USD looks maintain its 1.2500-1.2700 range for the time being.

Euro Data Fails to Help
Euro trading this week was completely dominated by US news, as its own meager series of economic results offered very little help to euro bulls. The ZEW survey dropped for the fourth month in a row printing at 37.8 versus 46 expected as higher oil prices, convulsing global equity markets and a rising exchange rate sent investor sentiment plunging to a yearly low. In the grand scheme of things the ZEW has far less impact than the much larger and more influential IFO survey which has been consistently printing positive new yearly highs nearly every month. Little wonder then that traders essentially ignored ZEWâ�,��"�s pessimistic tone. However, of far greater concern to euro longs was the surprising drop in Industrial Production which slipped â�,�“0.6% versus 0.4% expected. On Friday we wrote that this may be , â�,��"â�,�¦the first sign that higher exchange rates may be crimping growth in the industrial sectorâ�,�¦  On a year over year basis the figures still demonstrated an increase of 1.9%, however should the results  show another month of decline, the data would raise serious concerns about the viability of EZ recovery which is so heavily depended on export growth. â�,��"

Next week the European calendar is even more barren than the US with just smattering of second tier reports of which the New Industrial Orders stands as the most important.  If this release does not show a sharp improvement from  the month prior, it can weigh on the unit as last weekâ�,��"�s concerns about the impact of EUR/USD recent rise could blossom into full blown fear that  the higher euro is choking off the EZ recovery before its even has a chance to develop.

Fukui Confusion
The yen suffered the worst decline against the greenback amongst all the majors sliding  97 points for the week. The BOJ decision to keep rates at zero, though hardly surprising , still weighed on the unit as speculators were eager to see the end of ZIRP.  More problematic however, was the crisis surrounding BOJ Governor Toshihiko Fukui. Prior to becoming the Governor of BOJ, Mr. Fukui invested funds with a money manager who now stands accused of insider trading. Though Mr. Fukui himself is not implicated in the investigation in any way, the fact that  he did not liquidate his investment as soon as he became BOJ Governor is viewed askew by many in Japan. A poll taken over the week-end suggests that nearly 50% of respondents believe he should resign. Therein lies the danger to the yen. If Mr. Fukui is forced to leave office, confidence in Japanese monetary policy will be greatly shaken. Mr. Fukui is widely respected in the FX markets and his departure could weigh heavy on the yen as market participants will have to acclimate themselves to a new BOJ leader. The Fukui matter may well turnout to be a tempest in a teapot, but for now it presents a serious risk for yen longs.

Next week the Japanese calendar is light as well. BSI Large Manufacturers survey and Trade Balance are the two key releases on tap and neither is likely to exert a major impact on trading. At 115.00 and above USD/JPY feels overbought. However with US rates certain to move to 5.25% while the status of ZIRP remains unclear and Fukuiâ�,��"�s tenure facing serious questions, yen longs have a tough uphill climb ahead of them.

Pound Strength?
Despite only lackluster data, the pound put in the best performance for the week rising 45 basis points against the dollar. Part of its strength may have stemmed from higher than expected inflation gauges with CPI input registering a rise of 0.5% versus 0.4%. Retail Sales too, bounced to a 4.0% year over year  gain versus 3.6% projected while jobless claims printed reasonably within expectation at 5.8K versus 5.5K forecast.  In short, the news from UK suggested that the broader economy had stabilized providing little fodder for either longs or shorts.

With economy essentially in neutral the market expects no further moves from the BOE for the rest of the summer, but the release of the BoE minutes this week may shed more light on whether that assumption is true.  Of further interest to traders will be the BBA Mortgage lending figures, which should confirm the fact that housing market continues to expand steadily. June Distributive Trades report should add more clarity to the strength of the recovery in retail. Overall, the cable calendar remains quiet and the pound is likely to be at the mercy of the greenback for any moves that may happen this week.

Keeping Up with the Big Boys
The central theme for Swissie traders last week was the heavily anticipated hike in the 3-month libor rate to 1.50%. The news was no surprise to the market and therefore had little impact on the pair, though the franc did strengthen in the immediate aftermath of the announcement. Economically, however, the shift is a powerful one. Not only will the higher rates attract capital flows, but the aggressive pace with which they have taken suggests  that the Swissie may become  viewed as a growth currency rather than just a repository of safe haven capital. With steady, almost enviable growth, a burgeoning trade surplus and no international political risk; the Swissie is the perfect anti-dollar.

Whatâ�,��"�s more, the title of â�,��"safe havenâ�,� currency for the unit is expected to hold for a long time to come.  There has been little sign of slowing in the economy and future rate hikes are likely.  Following this past weekâ�,��"�s decision, SNB chairman Roth said that despite the new higher rates â�,��"monetary policy remains expansionary and the SNB will continue its policy of gradual tightening if the economy performs.â�,�

Turning to the calendar this week,  Industrial Production is expected to contract -3.8%, but decline is misleading coming off the huge rise to 6.8% the moth prior. Trade Balance surplus on the other hand is expected to expand to 1 Billion francs, only reinforcing the notion that the Switzerland enjoys an enviable positions of running both fiscal and trade surpluses.

Boris Schlossberg is a Senior Currency Strategist at FXCM.