Japanese Eco Watchers: Outlook (JUN) (05:00 GMT; 01:00 EST)
Consensus:         51.0
Previous:            49.1

Outlook: After June's surprise dip below fifty, the Eco-Watchers current assessment is expected to make a comeback.  Indeed, on the face of it, the Japanese have little cause for concern, as low unemployment and strong wage growth should continue to mollify consumers after the BoJ's July rate hike. Businesses are apparently unconcerned as well, as small business confidence overshot expectations by a large margin and the machine orders number continued its consistent growth in June. Even investment plans are weathering the end of extraordinarily inexpensive lending rate, with forecasts predicting a 0.2% increase in bank lending last month. However, with continued weakness in the retail sector, and with households responsible for most of the previous month's decline, consumer confidence could easily push the number in any direction.

Previous:  Last month's Eco-Watchers survey showed a drop in confidence for the first time since April 2005, as the possibility of ZIRP's demise made Japanese consumers jittery. With retail sales rising 0.4% annually to establish consumer spending habits and the deflationary cycle clearly ending, expectations mounted for the central bank to respond to a reinvigorated economy with an eventual lift in overnight lending rates. Despite strong manufacturing numbers actually showing increased confidence in the industrial sector, the specter of higher borrowing costs helped consumer pessimism sink the Eco-Watchers assessment to its lowest level in almost 18 months.

German Trade Balance (euro) (JUN) (06:00 GMT; 02:00 EST)
Consensus:          13.1B
Previous:             12.9B

Outlook: Germany is expected to report its largest trade surplus in five months, as a cheaper euro boosted exports by a full percentage point in June. With industrial production continuing to grow at a heady pace, global demand will be vital for Germany to avoid seeing its goods stagnate on the shelves. While imports are expected to rise along with exports, the effect will be mitigated by the declining import price index, which fell in June by 0.2% on lower commodities prices. However, with oil prices holding consistently above $70 a barrel, and much of June's domestic demand attributable to the ephemeral World Cup effect, German producers were in a tight spot as they were depending on the goods produced at home retaining their overseas appeal.

Previous:   The German trade balance rose in May by a greater than expected margin, even though an expensive euro caused a significant drop in exports. With a huge portion of growth attributable to global demand, the 1.5% decline in exports could bode poorly for Germany, which saw domestic sales drop by 0.4% in May. The falloff in exports was negated however as imports plummeted 2.6% against an expected increase - thanks largely to lower oil prices. However, with industrial production increasing at the fastest pace in a year, and retail sales falling 2.2% on the month, the German seems to be becoming too dependant on foreign demand.  This may evolve into a problem should the euro appreciate further or global growth show further signs of slowing down.

German Industrial Production (JUN) (10:00 GMT; 06:00 EST)
                       (MoM)        (YoY)
Consensus:       0.3%         5.3%
Previous:          1.5%         5.9%

Outlook: German factory activity is expected to have grown at a slower pace in June, up 0.3 percent from May's strong 1.5 percent increase.  The prediction of the slowdown is attributed mainly to a stronger euro, which is effectively curbing growth for the nation's significant exporting sector.  Since June, exchange rates have become a greater problem, after the zone's central bank increased lending rates for the fourth quarterly period last week.  Another threat to the gauge is factory orders, which declined by 0.5 percent on the month to erase the majority of its annual gains and put dampen the prospects of demand.  Broader business is also showing signs of slower growth as the PMI services and manufacturing surveys both dropped more than expected in their respective reports.  If the European consumer is unable to pick up slack in the export sector over the next few months, the ECB may need to give greater consideration to any further actions that would lead to an appreciation of its currency and further slow down its largest member's export prospects.

Previous:  Industrial production in Europe's largest economy rose 1.5 percent in April for its largest advance since October of 2003.  This reading bested an expected reading of 0.6 percent and was still better the strong performance of May's revised 1.2 percent rise.  The two previous monthly jumps have helped industrial production return to February's multi-year high of 5.9 percent as German export growth boosted business' appetite for expansion.  Investment goods, such as factory machinery and office equipment, which together grew 2.7 percent, led May's increase.  Annually, factory orders in Germany rose by 17.3 percent, making for the largest increase since 2000.  Business investment and growth has also helped to revitalize the nation's consumers as a hiring trend has pushed unemployment down to multi-year lows. 

Federal Open Market Committee Rate Decision (18:15 GMT; 14:15 EST)
Consensus:          5.25%
Previous:             5.25%

Outlook: The United States' Federal Reserve Bank is widely expected to put an end to its series of interest rate hikes.  Passing over a chance to raise its overnight lending rate would be first such occasion in seventeen consecutive meetings, which dates back to 2004.  Contributing to the complete shift in prediction were signs of a slowdown in the world's largest economy that are partially the product of previous policy tightening.  Over the past couple of weeks, the US docket has provided clear evidence of a downturn, led by a weakening consumer outlook.  Most importantly, aggregate output slowed to a 2.5 percent annual pace, substantially slower than an expected reading of 3.25 to 3.5 percent.  The labor market has also slowed significantly as non-farm payrolls have failed to meet the market's consensus consistently and the jobless rate moved back to 4.8% of the available labor pool this past month.   This could be a telltale sign of slowing growth for the consumer sector in the coming months, which has already responded negatively to lost wealth from housing prices.  On the other hand inflationary pressures remain, as indicated by a quickening PCE.  This puts the monetary policy group in a difficult position where a vote for no change could support price growth while a hike could further stymie growth.  During his testimony to the Senate on the 19th of July, Chairman Ben Bernanke recognized first slower economic growth and said that policy makers need to be wary of lifting its benchmark rate too high, but at the same time keeping wary of inflation risks.  Despite this challenge for the Fed, it is widely agreed that the Fed is coming to the end of its restrictive policy cycle.  In fact, Fed Fund futures suggest that there is only a 16 percent chance that rates will be boosted for an eighteenth consecutive meeting.  Despite the evolving probabilities there are a few scenarios that have gained prominence among speculators. First of all, any hike would almost assuredly be met with dovish commentary that would leave another hike this year off the table.  Given the market's more probably outcome of a pass, the majority of the market believes more neutral to slightly hawkish rhetoric would be produced.  This would leave the doors open to future rate hikes should inflation grow too far out of line while at the same time answering the reality of wavering economic growth.

Richard Lee is a Currency Strategist at FXCM.