US Dollar
We have had a lot of decent sized moves in the currency market today, but none of that included the EUR/USD.  Instead, the big retracement moves were in currency crosses such as AUD/JPY and CAD/JPY.  US data once again does nothing but confuse traders about what to expect next and that is reflected in the mixed performance of the US dollar across different currency pairs.  For the most part, the dollar rallied against the four majors, but sold off against the commodity currencies.  Like producer prices, the fall in energy prices drove headline consumer prices lower, but excluding food and energy components, prices actually increased in the month of September with the annualized rate of core growth hitting a 10 year high.  However, the rise in core prices was primarily due to an increase in housing or rent, which is not necessarily positive for the US consumer.  Overall, there is only one clear message that we can draw from todayââ,¬â"¢s inflation reports which is that the Federal Reserve will not be making changes to interest rates anytime soon, especially not at next weekââ,¬â"¢s FOMC meeting.  The housing market continues to be sector worth watching.  Housing starts jumped in September, but building permits, which is a measure of the future confidence of home builders fell to a five year low.  Today, we also published a special report on the bankruptcies of home builders that is relevant.  The dollar will probably continue to struggle as key levels in the majors caps further rallies.  We are expecting leading indicators and the Philadelphia Fed survey tomorrow.  The releases are expected to snapback after prior weakness, but given the surprise drop that we saw in industrial production yesterday, there is still a chance that the reports could come out weaker.  Unfortunately, consolidation will probably continue to be the main theme in the majors, but for those looking for interesting price action, there are plenty of reversal and trend opportunities in the currency crosses at the moment. 

Euro
Over the past six trading days, the EUR/USD has been trapped within an 88 pip trading range.  Intraday volatility has once again led to barely unchanged price action on a day to day basis.  We did not have any meaningful Eurozone data released this morning aside from the trade balance which came out weaker than expected.  There is nothing significant due for release over the next two days which means that the EUR/USD will continue to be driven by US fundamentals.  Traders looking at incoming European data are questioning whether the European Central bank will be bold enough to push forward with their aggressive plan to normalize rates.  On the other hand, they are looking at US data and wondering how much longer the Federal Reserve will keep rates on hold.  The lack of clarity has prevented the EUR/USD from weakening any further, but at the same time, has given it little reason to rally.  However, the ECB has a knack for overshooting interest rates, which should keep in balance in the EUR/USDââ,¬â"¢s favor.  In addition, whenever we have tight consolidations in the EUR/USD like we do now, there usually tends to be a major catalyst from the left field that takes it out of the range.  We certainly do not have a lack of things that are brewing such as the possibility of another nuclear test by North Korea, planned production cuts by OPEC, along with the potential for the US housing market to tip over.  Euro traders should be cautious since a break at this point could be sharp. 

British Pound
Weaker labor market data has pushed the British pound lower despite moderately hawkish minutes from the Bank of Englandââ,¬â"¢s most recent monetary policy meeting.  According to the minutes, the two newest members of the central bank voted against keeping rates unchanged this month and instead favored a more immediate increase.  After hearing hawkish comments from BoE Governor King not too long ago, there are many traders positioning for another quarter point rate hike to 5 percent over the next few months.  However, before getting too excited, the BoE pays very close attention to wage growth.  The drop in average earning in the month of August along with some slack in the labor market may prompt the central bank to take a more wait and see approach by forgoing a November rate hike.  Traders are still very sensitive at the moment as UK data tends to follow the trend of one step forward, two steps back.  We are expecting retail sales and some lending data tomorrow.  Should the numbers disappoint, we could see the British pound pullback further.

Japanese Yen  
It appears that Russiaââ,¬â"¢s plans to diversify their reserves to yen was not enough to offset the downside risks that the yen faces at the moment as well as the high carry payments traders would have to pay if they were short yen for a long period of time.  Overnight, the yen lost further ground after a Bank of Japan spokesman refuted speculation that the central bank is monitoring carry trades, namely the massive amount of short yen positions that have been built in the markets.  If they are not watching it, it means that they are not too concerned about it at the moment.  Meanwhile, a number of official government sources from around the world have reported that North Korea plans on carrying out another nuclear test which could cause another round of uncertainty in the Asian region.  With sanctions not having much of an effect, Japan may be forced to look for more aggressive measures.  Finally, after an emergency meeting, OPEC has announced plans to cut oil production by 1.0 million barrels per day.  Oil prices have not reacted much, but the Canadian dollar and Japanese Yen have.

Kathy Lien is the Chief Currency Strategist at FXCM.