Dollar Down on Data
Itâ�,��"�s the dog days of summer and traderâ�,��"�s focus is clearly wandering away from their screens to the sandy beaches of theHamptons and the azure waters of St. Tropez. For the week, EUR/USD traded in a range that was barely 150 points wide with some sessions so listless that that price charts often resembled an electroencephalogram of a person peacefully asleep. Nevertheless, economic data exerted some  influence and the weight of overwhelmingly negative numbers from the US pressed on the greenback. Most importantly, both inflation gauges missed to the downside indicating that pricing power remains muted  dampening any hopes of a restart of the Fed rate hike campaign. Furthermore, Housing and Consumer sentiment readings plunged suggesting that higher energy prices and plummeting housing values are putting US consumers into a decidedly sour mood.

Next week event risk quiets down even further, but housing data may create some temporary volatility. With market expectations already low, any upside surprise in Existing Home sales could boost the greenback. New Home Sales however are likely to slip further. Finally Durable Goods and Consumer Confidence reports are expected only to bolster the case of dollar shorts printing lower than the month prior. However, given the absence of volume and interest, the rangebound, low volatility environment is likely to persist. For now, positioning remains dollar bulls best friend. With  IMM specs so heavily long euros the pair remains grossly overbought and any rallies above the 1.2900 figure will have little fuel to propel them further unless event risk turns even more dollar bearish.

Euro Gains at Greenback's Expense
If theUS data calendar was quiet than the Euro-zone economic schedule was practically non-existent. Among the smattering of reports, the Trade Balance news was perhaps the most important with the number shrinking to -.9B from -3.2B the month prior.  Further down the pole, EZ CPI and French Wage data showed little pricing pressure in the EZ pipeline. As we noted on Friday, â�,��"The French wage data  is  consistent with the latest CPI  releases from the Euro-zone, which suggest that while Producer prices continue to move relentlessly higher, pricing power in the 12 member region remains decidedly weak. The contrast between input costs and output prices should raise questions amongst euro longs regarding the  probability of continued rate hikes from the ECB. While we doubt the European monetary authorities will flat our pause in their tightening campaign, they may choose to slow the pace of rate hikes perhaps ratcheting rates  only to 3.25% rather than 3.50% by year end.â�,�

Next week,  the pace of economic news flow picks up markedly with both ZEW and IFO surveys scheduled for release.  The market expects both surveys to continue their downward slide and, if they confirm market expectations, the euro is quite likely to see some pressure to the downside as doubts regarding the regions fragile state of economic recovery will surface once again. However, unless we see massive surprises from either one of the reports, the price action is likely to remain contained with most dealers more interested in the sea and the sand than the latest government statistics.

Yen Holds Firm
While the yen ended the week relatively unchanged, the USD/JPY managed to come off two week highs made on Monday despite less-than-hawkish commentary out of the BOJâ�,��"�s Monetary Policy Meeting Minutes and muted economic releases.  The minutes revealed that the decision to hold rates at 0.25% on August 11th was a unanimous one as expected. While Governor Fukui and policy board members Suda and Mizudo continued to refuse to rule out one more rate hike before year end, the MPC indicated that cooler heads will likely prevail, saying, â�,��"the Bank would adjust the level of the policy interest rate gradually in the light of developments in economic activity and prices, and in this process, an accommodative monetary environment ensuing from very low interest rates would probably be maintained for some time.â�,� Fundamentals from the past week did little to add to â�,��"developmentsâ�,�, as the Tertiary Industry Index unexpectedly dropped â�,�“0.6% in June versus the predicted rise of 0.2%. The decline was a result of surging oil prices which cut into consumer demand, however, as we said last week, â�,��"Structurally, the Japanese services sector remains healthy with the quarterly reading reaching its second highest level since 2000. If oil prices continue to recede from their record highs, the Japanese economy should receive a welcome boost as consumers will likely direct more of their income towards  discretionary spending.â�,�

The yen also got a last minute boost after the markets closed on August 18th when the PBOC unexpectedly hiked its benchmark rate by 27 basis points to 6.12%.  The increase, however, was consistent with widespread predictions that the Chinese central bank would be obliged to take further tightening measures to prevent potential overheating, as Q2 GDP figures came in at an incredible 11.3%.

Next weekâ�,��"�s economic release calendar will be light just ahead of Thursdayâ�,��"�s release of Tokyo and National CPI figures for August and July, which are anticipated to decelerate and drag the annual inflation readings down lower. Declines in CPI will not bode well for Yen bulls, as central bankers may need to add the term â�,��"deflationâ�,� back to their vernacular.

Pound Slips on Slower CPI, Dovish BOE
The Pound found itself about 100 points lower at the end of the week as inflation and retail sales figures all proved to be disappointing for the UK growth outlook, and the BOE minutes reflected a more dovish tone.  PPI for July started out the week indicating that producers are holding on to a greater price burden and have not been passing costs onto end-users, as PPI input jumped 1.1% and PPI output rose less than anticipated by 0.2%.  The gap between input and output could raise one or both of the following concerns: squeezes on companiesâ�,��"� profit margins and accelerated inflation in the coming months.  CPI slipped â�,�“0.1% in July against an expected flat reading, subsequently bringing the annual rate down to 2.4% from 2.5% and closer to the BOEâ�,��"�s 2% target. The slowdown could indicate that the BOE jumped the gun when they unexpectedly hiked rates on August 3rd to 4.75% as a preventative measure. The minutes of the Bankâ�,��"�s MPC minutes highlighted this concern and, as we said last week, â�,��"The uncertainty over the true state of UK economic affairs was reflected in the latest discussions of the MPC as revealed by the BOE minutes which [resulted in] a 6-1 vote with most members unconvinced that a series of rate hikes was necessary.â�,�  The surprising drop of â�,�“0.3% in retail sales underpins the uncertainty, as external factors, such as the World Cup, may have been more of a temporary driver of economic growth while the central bank has been responding to sustainable expansion.

This week should please Cable bulls, as CBI Industrial Trends may reflect a continuously growing manufacturing sector and Q2 GDP may show further expansion in the UK economy. Traders are likely to look at the drivers of GDP, as market participants look for domestic demand-led acceleration, which tends to be more beneficial for the economy and longer-lasting.

Sales Send Swissie Higher
The Swissie finally benefited from continuously positive economic indicators, as USD/CHF ended the week about 100 points lower. Adjusted retail sales in June improved to 4.8% from â�,�“2.3% as the Swiss consumer appeared to be the most resilient of the European nations amidst strong sentiment and a healthy labor market.  It is becoming increasingly likely that the Swiss National Bank will stick to their schedule of monetary policy tightening every quarter until year end, which could bring the benchmark rate up to 2.00%.  It appears that SNB Vice-Chairman Niklaus Blattner will be sticking around just long enough to see the highest Swiss rates since 2002, as Blattner announced his resignation last Friday, catching traders off guard and initially sending the Swissie lower.  The announcement shouldnâ�,��"�t have surprised anyone, however, as the notoriously transparent central bank had expected his departure in April 2007.

This coming week should be a bit more exciting for the Swissie, with Producer and Import Prices predicted to rise in July. Indications of accelerated inflation will give the SNB substantial scope to hike rates on September 14th, 2006.  Swissie bears, however, will be looking for a narrowing in Switzerland's trade surplus, as exports, which make up nearly half of the countryâ�,��"�s GDP, are anticipated to decline slightly.

Boris Schlossberg is a Senior Currency Strategist at FXCM.