US Dollar
2006 has been a tough year for the US dollar.  It lost value against the Euro, Swiss Franc, British Pound and Australian dollar while only managing to end unchanged against the Japanese Yen, Canadian and New Zealand dollars.  Volatility shrank to record lows and the breakout that we saw in late November lasted for no more than 2 weeks for most of the currency pairs.  The US dollar ended the last trading day of the year stronger against every major currency except for the Euro.  The calendar was very light with only the help wanted index released this morning.  The index remained unchanged and resulted in zero volatility for the greenback.  All markets are closed on Monday while the US stock markets will remain closed on Tuesday for National Mourning Day (for former President Ford).  Futures markets will be open on Tuesday, but will close early.  However, just because the US markets are closed on Tuesday does not mean that traders should not be prepared for the busy week ahead.  There are a lot of important data set for release including manufacturing and service sector ISM, the minutes from the last FOMC meeting and non-farm payrolls.  With the EUR/USD and GBP/USD consolidating for most of December, next weekââ,¬â"¢s data could start the year with bang.  Manufacturing ISM is due out Tuesday.  After the strong Chicago PMI print yesterday, we could actually see the index rebound, especially since the ISM adjusted Philly Fed index increased in the month December despite the drop in the headline index.  Traders will be paying a very close attention to the prices paid component since inflation is still the Federal Reserveââ,¬â"¢s top priority.  Recent economic data has been mixed which means that the outlook for the economy is still uncertain.  The non-farm payrolls report on Friday should help to clarify things, but in the beginning of the week, the ISM number will help to confirm or deny whether the manufacturing sector is still facing recessionary conditions. 

Euro
The Euro is up 11.5 percent against the US dollar this year and is the only currency to strengthen against the dollar in the last trading day of 2006.  The outlook for the EUR/USD is bullish both technically and fundamentally.  The latest rise was sparked by the sharp jump in M3 money supply in the month of November.  The annualized rate of growth hit 9.3 percent, which is the fastest pace of growth since February 1990.  The 3 month moving average rose to 8.8 percent, which is the biggest gain since May 1990.  The rapid growth is sure to raise the eyebrows of the already hawkish central bankers and will give them an even stronger reason to lift interest rates in the first quarter of next year.  This comes in stark contrast to the US Federal Reserve who at best will keep interest rates on hold and at worst, will begin lowering interest rates in the first quarter.  The ECB has said loud and clearly that they plan on continuing to raise interest rates. Just yesterday, ECB member Mersch reiterated the central bankââ,¬â"¢s view that interest rates remain very low and monetary policy is still accommodative.  Like the US, there is a great deal of Eurozone economic data due for release next week.  We are expecting manufacturing, retail and service sector PMI, along with inflation, unemployment, and retail sales.  Meanwhile in Switzerland, the KoF leading indicator fell more than expected from 1.75 to 1.60.  This confirms the drop in the UBS consumption index reported earlier this week.  Swiss PMI and CPI are due out next week with potential weakness in both.

British Pound
Like the Euro, it has also been an extremely good year for the British pound, which has appreciated 13.6 percent against the US dollar.  A recovery in the housing market as well as strong merger and acquisition flows has helped to drive solid gains in the currency.  However, even though the Poundââ,¬â"¢s move beat the Euroââ,¬â"¢s this past year, in the last 24 hours, mixed economic data was not enough to help the currency match the rise in the Euro.  Mortgage approvals surged in the month of November, but mortgage equity withdrawal was lower than expected in the third quarter.  The offsetting reports forced the British pound to fall victim to overall dollar strength.  More housing market data is due out next week along with PMI indices, money supply and consumer confidence. 

Japanese Yen
Even though USD/JPY ended the year basically unchanged from where it started, the Yen weakened significantly against all of the other majors, especially EUR/JPY which hit yet another record high on the last trading day of the year.   The main question in the weeks ahead is when will the Bank of Japan raise interest rates.  The JiJi news suggested earlier this week that we could see a 25 or 50bp hike in January.  However last night, Nikkei news said that the BoJ will not rush to raise rates.  No one is sure, which is what makes the Yen the biggest at risk currency in 2007.  Economic data has been mixed and does not support a premature tightening.  Consumer prices and consumer spending have been weak.  The Manufacturing PMI survey released last night reported a drop from 53.7 to 53.1 in the month of December.  BoJ Governor Fukui has already said that their decision remains data dependent.  Unfortunately there is no data next week with the Japanese markets closed until Thursday, which means that Yen traders will need to continue to wait. 

Commodity Currencies (CAD, AUD, NZD)
The Australian dollar ended the year up 7.5 percent against the US dollar, but its other commodity currency peers were not as lucky.  Both the New Zealand and Canadian dollars ended the year basically unchanged as the commodity boom came to a halt in the summer of 2006.  There was some secondary data from Australia and New Zealand reported overnight.  Australia saw stronger private sector credit growth while New Zealand saw stronger money supply growth in the month of November.  However the real story today was the Canadian dollar.  The currency surged to a fresh 8 month high.  With no news on the calendar, the move was driven primarily by acquisition flows.  Canadaââ,¬â"¢s Power Corp will be buying March & McLennan Company's Putnam Investments money-management unit for $3.9 billion.  There are some key Canadian data due out next week and light Australian and New Zealand data.

Kathy Lien is the Chief Currency Strategist at FXCM.