US Dollar
It has been an extremely quiet day in the currency market.  Trading has essentially grinded to a halt after the London close as the EUR/USD, USD/JPY and GBP/USD fluctuates within a narrow 20 point trading range.  We expect to see much of the same thin cautious trading tomorrow especially since we have no significant data due for release compared to todayâ�,��"�s release of consumer confidence and existing home sales * both of which were stronger than expected.  Existing home sales fell from 6.75 million to a better than expected 6.67 million in the month of May while consumer confidence jumped from an upwardly revised 104.7 to 105.7 thanks to a drop in petrol prices.  As we read other peopleâ�,��"�s expectations for what the Federal Reserve will do on Thursday, it is becoming clearer that the upcoming meeting will be catalyst that pushes us out of the current range trading mode.  Some analysts are predicting Thursdayâ�,��"�s quarter point rate hike to be Fedâ�,��"�s last while others are mulling over the possibility of a 50bp surprise move.  Right down the middle are those in favor of a quarter point hike with a hawkish bias and on top of that, everyone has good reasons.  At this point it is really a guessing game and with even the experts divided, a hard one at that.   Should the Fed continue to be tough with inflation, more analysts will be joining the 6 percent club and the dollar will continue to rally, making a run to 118 USD/JPY and 1.24 EUR/USD very likely.  The scale is tilted slightly more in favor of that scenario but at the same time many people have been screaming that Bernanke is playing with fire by not pausing.  There are so many possible scenarios including one from Fed Watcher John Berry who said that the central bank could raise rates, pause, and then raise them again.  Such a big event risk is one that is difficult to trade, however it could very well set the tone for weeks to come. 

Euro
The German IFO survey of business sentiment came in much stronger than expected and even surged to a 15 year high in the month of June.  Over the past two days we have been saying that the sharp jump in the Belgian index and the World Cup could keep businesses more optimistic.  At a time when interest rates were rising and oil prices remained high, the jump in confidence says quite a bit about how much business the World Cup is expected to bring.  However we probably should not underestimate one of the biggest sporting events in Europe if not the world.  Even business confidence in Italy increased in June for the thirteenth consecutive month.  If the World Cup truly delivers a boost for the German economy, it would come at an opportune time and possibly even give the European Central Bank a good reason to raise rates at their next meeting.  Mersch and Quaden joined Weber yesterday in putting their hawk caps back on and today ECB council members Garganas and Hurley did so as well.  They both warned of inflation risks with Garganas taking it one step further by saying that there is no reason why the ECB would not consider a 50bp hike.  A few days ago, we had said that we were waiting for more central bankers to join Weber in reiterating their hawkish stance following the most recent ECB meeting and so far this week we have heard from many.  Even ECB President Trichet said that they will remain â�,��"permanently alertâ�,� which undoubtedly has a bit of hawkish connotations.  In fact, the market has already priced in at least two more interest rate hikes this year.  However, with the FOMC meeting coming, none of this helped has helped the Euro much * only after we have absorbed the FOMC event risk will traders be able to consider Euro fundamentals.

British Pound
The British pound is slightly weaker against the US dollar today as the countryâ�,��"�s neutral monetary policy comes in stark contrast to the more hawkish policies of the US Federal Reserve and the European Central Bank.  We have heard little from the Bank of England since Waltonâ�,��"�s surprise death. They are probably focused on searching for a replacement with two empty seats on the committee.  When we hear from the BoE on who the potential replacements will be, the market could be interested in which way the person leans.  In the meantime, the dollar is king and will dictate the overall movement of the currency pair.  The only piece of data released today was mortgage application for the month of May.  After yesterdayâ�,��"�s increase in Hometrack prices, mortgage applications did not fail to disappoint as they rose to 81.3k compared to 64.7l the previous month.  This confirms the gradual recovery that we have been seeing the UK housing market. 

Japanese Yen
Like many of the other major currencies, the Japanese Yen was mostly unchanged today as the market juggles more speculation that Bank of Japan Governor Fukui could resign with hawkish comments from policy member Mizuno.  Unfortunately for Fukui his wife seems to have also invested in stock involved in the Murakami scandal while Prime Minister Koizumi seems to be softening his support for Fukui.  Voters are still calling for his resignation with 67 percent of people polled in a national survey favoring his departure.  Even if the market wants to see him stay on, the lack of public support is worrisome.  Meanwhile Mizuno helped to give the Japanese Yen some support when he said that the central bankâ�,��"�s inflation forecast may be a bit too conservative and that they will not be swayed by the recent slide in equity prices.

Kathy Lien is the Chief Currency Strategist at FXCM.