US Dollar
The markets are already going into holiday mode as trading begins to slow.  The US dollar rebounded after an upward revision to October leading indicators.  The strong rally in the stock market is fueling euphoria by keeping consumers happy despite an uncertain economic outlook.  With little on the US economic calendar this week, we turn our focus to the Christmas shopping season.  Retailers have begun to target consumers far earlier this year than they have in the past and according to the latest Gallup poll conducted last week, consumers expect to dole out the big bucks this season.  The November 9-12 national Gallup poll indicated that 34 percent of adults think that they will spend at least $1000 on gifts.  This is the strongest sentiment that we have seen in early November in at least 4 years.  Between 2002 and 2005, only 25 to 30 percent of the people polled expected to spend that much.  Average expenditure expected last week was also the highest reading for the week since 2000.  Black Friday, which is the Friday after Thanksgiving will shed more light on how well retailers may do at the end of the year.  If spending is strong, it would relieve some of last weekâ�,��"�s concerns as it suggests that the slowdown in the housing market has yet to have a significant toll on the consumer and that we could actually see an increase in retail sales after two back to back months of negative readings.  However for the time being, carry trades remain in favor as the market looks ahead to another week of low volatility and range bound trading. 

Euro and Swiss Franc
The Euro retraced earlier gains at the onset of US trading.  Traders have shrugged off firmer German producer price reports and hawkish comments from ECB officials this weekend.  ECB President Trichet reiterated his hawkish stance while Garganas one upped him by saying that the ECB maintains â�,��"extremeâ�,� vigilance.  They were both optimistic on the outlook for growth and confirmed the central bankâ�,��"�s plans to raise interest rates early December.  We do want to point out that Garganas also repeated Trichetâ�,��"�s comments that it is too early to talk about their plans for monetary policy next year.  This suggests that the central bank President will probably be taming down his comments on December 7th, which would be construed as bearish for the currency.  The odds of this happening are even greater if the EUR/USD hovers around 1.2850-1.2950 at that time.  Trichetâ�,��"�s comments have often marked a peak in the Euro so it would not be surprising to see it do the same this time as well.  Tomorrow we are expecting French GDP.  The strong Euro is expected to keep French growth stagnant in the third quarter, which would confirm weakness that we have already been seeing in the Eurozoneâ�,��"�s second largest country.  Meanwhile Switzerland will also be releasing their October trade balance.  The surplus is forecasted to shrink after the record balance hit in the month of September.  However another strong print, which would not be out of question given the recent weakness in the Swiss Franc could fuel gains for the currency. 

British Pound
Unlike the Euro, the British pound managed to extend its gains against the US dollar.  It seems that the surprise rise in retail sales last Friday has had a meaningful impact on the currency.  The housing market continues to be the primary driver for sterling strength as the Rightmove survey of house prices reported the strongest pace of growth in 2 years.  Consumer credit also increased in the month of October with mortgage lending hitting a record high.  As long as the housing sector continues to boom, the BoE will continue to consider the option of raising interest rates.  Meanwhile money supply data for October was slightly softer after hitting 16 year highs in September, which confirms the weakness that we saw in consumer and producer prices last week.  It also validates the central bankâ�,��"�s downgrade to their inflation forecasts.  Manufacturing sector data is scheduled to be released tomorrow.  After a surprise drop in October, the November numbers are expected to rebound.   

Japanese Yen
The Japanese Yen reversed most of Fridayâ�,��"�s gains as traders struggle to figure out where the currency is headed.  The lack of critical comments about the yen at the G20 meeting this weekend gave some traders the confidence to plow back into short yen carry trades.  In fact, the Japanese government continued to talk down the yen with the Japanese Finance Minister saying that FX rates should reflect economic fundamentals and be determined by the market.  The Vice Finance Minister even added that they are not concerned about the unwinding of carry trades.  This Laissez-faire approach suggests that the government still favors a weak yen and as such, this gives a green light for carry trades to remain intact at least until the Thanksgiving holiday.  The Bank of Japan will be releasing the minutes from their October monetary policy meeting tonight.  No surprises are expected as monetary policy members unanimously vote to leave interest rates unchanged. 

Commodity Currencies (CAD, AUD, NZD)
The New Zealand dollar is the dayâ�,��"�s best performing currency pair, confirming that carry trades are back in play.  Visitor arrivals rebounded after a drop in September, but the possibility of more uridashi issuance and the countryâ�,��"�s attractive yield continues to fuel gains.  It has even helped to lead the Australian dollar higher.  Both countries do not have any more economic data due for release this week, but the combination of firmer commodity prices and high interest rates could keep the currencies bid.  Despite unchanged oil prices and the biggest fall in wholesale sales since July 2005, the Canadian dollar rebounded on acquisition news.  TD has announced that it is buying the remainder of TD Banknorth for $3.2 billion.  Retail sales and leading indicators are due for release tomorrow. Both are expected to be weaker which would confirm the deterioration in the overall economy and illustrate the powerful impact that oil prices have on Canada.

Kathy Lien is the Chief Currency Strategist at FXCM.