US Dollar
After a month of consolidation, the break that we have been looking for in the currency market has proven to be real as the US dollar powers ahead and continues to extend Fridayâ�,��"�s gains.  The action today was confined within the European trading session as London session traders took the EUR/USD lower.  For most of the US session, the EUR/USD traded in a very narrow 13 pip trading range as the combination of falling oil prices, a strong Redbook report, modestly bullish comments from Fed President Fisher and a sizeable jump in wholesale inventories kept the dollar bid.   Having rallied six consecutive trading sessions against the Euro, the move is looking tired on a shorter term basis.  However we will have to wait until Thursday for any meaningful catalyst.  The minutes from the September 20th FOMC meeting are due for release tomorrow but no surprises are expected.  The minutes should reflect the Fedâ�,��"�s recent comments about the slowdown in the housing market and the still prevalent upside risks to inflation even though oil prices have fallen along with inflation in other countries.  Fed President Lacker will also be speaking tomorrow.  Since he is a voting member of the FOMC, his comments are far more important than todayâ�,��"�s comments from Fisher, who is non-voter.  Fisher was not as concerned about the housing market as his peers and felt that inflation is still at very high levels.  The three big releases this week to watch for are the trade balance, retail sales and the Beige Book report.  Weekly retail sales reports have been very strong which suggests that consumer spending could have continued to grow in the month of September.  Given that the risk to the data is to the upside this week, even though the dollar rally may soon find support, any corrections will probably be limited to 1.2685 against the Euro. 

Euro
The Euro continued to trade at two month lows against the US dollar as it sells off for the sixth consecutive trading day.  Economic data released this morning was mostly Euro positive with French and Italian industrial production coming out stronger than expected.  The French trade balance widened, but was revised lower for the month of July.  Most importantly, ECB official after ECB officials continue to signal to the markets that interest rates are headed to 3.5 percent.  Even though the market has shrugged off these comments, they should not be ignored as the ECB is notorious for their attempts to smooth price action in the currency markets by giving traders plenty of time to price in moves by the central bank.  The recent weakness in the Euro should erase any of their hesitation to take rates higher, which in the medium term should be positive for the Euro.  The European Commissionâ�,��"�s forecasts for GDP is due for release tomorrow, given the recent trend of data, growth is expected to pick up in the quarters ahead.  The only concern is the impact of the German VAT tax at the beginning of next year, but that may not resurface as a major headliner until late November, early December. 

British Pound
Of the four majors, the British pound is once again, the dayâ�,��"�s biggest loser.  Yesterday the problem was producer prices, today it is the trade balance.  The UKâ�,��"�s trade deficit narrowed in the month of August, but it was revised significantly higher for the month of July from -GBP6.33 billion to -GBP6.78 billion.  The drop in demand came primarily from weaker Eurozone imports.  It appears that the gradual slide in EUR/GBP is hurting the countryâ�,��"�s trading activities more than the drop in the GBP/USD.  In addition to the trade deficit, retail sales, as measured by the BRC survey also came in softer than expected.  Even though the housing market is picking up, consumers are still very thrifty with increased sales contingent upon discounts and promotions.  This suggests that next weekâ�,��"�s ONS retail sales index could also be weak.  Unfortunately for the UK, it seems that economic data has been on a downward spiral.  This will move the Bank of England further away from an interest rate hike and in all likelihood, the central bank will keep interest rates unchanged for the remainder of year. 

Japanese Yen
The Japanese Yenâ�,��"�s performance today was very mixed which is no surprise given that the economic data released last night was also conflicting.  Machinery orders for the month of August rebounded less than expected while the Eco Watchersâ�,��"� â�,��"man on the streetâ�,� survey increased in the month September.  This suggests that even though the manufacturing sector remains weak, consumer confidence is rebounding, which should help to drive spending.  Unfortunately, the nuclear tests by North Korea may have put a dent in that optimism as Japanese citizens worry about what kind of steps the international community will take to respond to North Koreaâ�,��"�s acts, if any.  There has been widespread speculation on whether North Koreaâ�,��"�s nuclear test was actually successful or another fizzle.  South Korea believes that their Northern neighbor may look to test another missile in the near future.  The geopolitical uncertainty in the region is making it difficult for traders to fade the move in the yen against the Euro and the US dollar.  The currency has weakened further against the two majors but has managed to recuperate some of those losses against the British pound, Swiss Franc and Canadian dollars.  

Kathy Lien is the Chief Currency Strategist at FXCM.