US Dollar
The much awaited non-farm payrolls report for the month of June was a big disappointment and did little to clear the air on whether the Federal Reserve could potentially raise interest rates again in August.  Even though the headline non-farm payrolls number came in significantly below expectations, the details of the number and the household survey was not nearly as dollar bearish.  We have already seen the US dollar recuperate a good portion of its losses against the Euro as the up tick in average hourly earnings, rebound in manufacturing payrolls and strong job growth as measured by the household survey create a more mixed report.  The market was really banking on the NFP number to sway the dollar in one direction, however the ambiguous number only prolongs the uncertainty by making next monthâ�,��"�s non-farm payrolls report even more important.  The next Federal Reserve meeting is scheduled for August 8th, which means that we still have one NFP, one retail sales and one consumer price inflation number before the meeting.  Although todayâ�,��"�s number signals that job growth is sluggish, the jump in average hourly earnings suggests that wage pressures are still prevalent in the US economy and leaves the door open for another hike in August.  FOMC voting member Kohn made surprisingly hawkish comments yesterday when he said that even though the Fedâ�,��"�s continual rate hikes run the risk of inducing weakness in the economy, â�,��"there is greater risk from not tighteningâ�,� if inflation gets out of hand.  Therefore they may not be willing to back down quite yet, especially if we see an up tick in CPI later in the month.  At close of business Friday, August Fed Fund futures are now pricing in a 48 percent chance of a quarter point rate hike in August, down from 52 percent yesterday.  Right now the direction of the EUR/USD will depend on who is more aggressive when the time comes to move on rates.  Depending on how vigilant the ECB is in August, the EUR/USD could be contained within a 1.26-1.2950 range. In addition, Bernanke is giving his semi-annual testimony on the economy and monetary policy on July 19th, therefore dollar bears may hold off until they get clearer direction from the Fed Chief. For the time being, EUR/USD strength predominates as the hawkish comments from the ECB press conference will reverberate through the market while it awaits Bernanke's testimony.  We promised to update the FXCM SSI numbers and they are the following: EUR/USD -1.18, USD/JPY 1.38, GBP/USD -1.24, USD/CHF 2.48.

Euro
Oil prices are ticking higher and this has everyone worried, including the European Central bank.  ECB monetary policy member Bini Smaghi echoed Trichetâ�,��"�s comments from yesterday by saying that they need to be â�,��"very vigilantâ�,� and â�,��"do everything possibleâ�,� to contain inflation.  The ECB has let the market know their full intention to raise interest rates next month and most likely at the beginning of the month than at the end.  Whether or not the EU finance ministers agree is something we will learn more about next week when they convene.  We suspect some may start to express concern about the level of the Euro, but only if we break back above 1.29.  Even though a stronger Euro hurts exports, it also offsets some of the higher oil prices by increasing the purchasing power of European nations.  The World Cup finals this weekend will give the German economy a last big boost before the country has to return to being dependent upon the spending of their own citizens.  After slightly weaker retail PMI numbers yesterday, industrial production came in very strong, rising a more than expected 5.9 percent from 4.2 percent the previous month.  In the week ahead, there continues to be an exceptionally busy Eurozone economic calendar.  Aside from official comments, the French industrial production report, the trade balance for Germany and France and the French consumer price index are all due for release in addition to the third quarter released of Eurozone GDP.  Meanwhile confirming the continually strong performance of the Swiss economy was this morningâ�,��"�s unemployment rate which dipped from 3.3 percent to 3.1 percent in the month of June.

British Pound
The British pound is stronger against both the US dollar and the Euro today despite the lack of any news from the UK.  Over the past week, the divergence between the Bank of Englandâ�,��"�s neutral monetary policy and the European Central Bankâ�,��"�s aggressively hawkish policy has become increasingly clear.  Therefore even though the EUR/GBP has fallen 0.5 percent today, which is much larger than its average daily move, as long as fundamentals hold, this correction should be nothing more than a blip in an overall uptrend.  Against the dollar however, the British pound has been left to the whim of US economic data.  This could change in the week ahead as we expect inflation numbers, the trade balance, retail sales and the unemployment report.  Meanwhile there have been rumors that Morgan Stanley Chief Economist David Miles could be tapped to join the Bank of Englandâ�,��"�s Monetary Policy Committee.  He has not commented on the rumors but if this is true, based upon Morganâ�,��"�s Stanleyâ�,��"�s forecasts, Miles would be categorized as more of a hawk than a dove. 

Japanese Yen
It has been a great day for the Japanese Yen as the currency strengthened against all of the majors. Not only is the market pricing in the possibility of an interest rate hike by the Bank of Japan next week for the first time in six years, but also the possibility of an emergency meeting by the Peopleâ�,��"�s Bank of China.  The Japanese Cabinet is expected to increase their 2006 GDP forecast for Japan from 1.9 percent to 2.1 percent and their CPI forecast from 0.5 percent to 0.6 percent YoY, which would confirm the improving conditions in the Japan and support a rate hike .  Sparking more talk of a move next week were overnight comments from BoJ Tanigaki who said that an end to deflation is in sight.  The only wrinkle would be whether the Fukui scandal holds them back at all.  As for China, the Yuan hit a post revaluation low causing the market to speculate on whether the central bank will hold a meeting to widen the trading band for the USD/CNY currency pair.  Even before last night however, there has already been talk of this after a state run newspaper brought up the possibility earlier this week.  Although the government has denied any meetings, another move by China is inevitable and when it comes, it will be perceived as positive for the Japanese Yen.

Kathy Lien is the Chief Currency Strategist at FXCM.