German Consumer Price Index (JAN P) (N/A GMT; N/A EST)
                  (MoM)   (YoY)
Consensus: 0.2%     2.0%
Previous:     0.8%     1.4%

Outlook: Inflation in Europe’s largest economy is expected to normalize after December’s sharp advance, though the annual figure looks to ride the momentum higher. Germany’s national CPI gauge is expected to print 0.2 percent price growth in December, held down by energy and local businesses adjusting prices in response to the change in the value-added tax. Energy prices have seen significant declines the past few months. Crude oil prices ended December above $60 per barrel and have since fallen all the way to $50 per barrel. Relief in price pressures will also be surveyed as a result of the recent tax hike. At the turn of the year, the government’s plan to raise the VAT rate from 16 to 19 percent took affect. Leading into the report, inflation and spending heated up as both sides of the economy looked to profit before the burden was put into place. While consumer and investor confidence has weathered the turn over with the lowest jobless rate since 2002 and an unflinching equity market advance, business optimism has slipped from its own high. Also noteworthy, looking at the monthly CPI gauge over the past years, a jump in December and sharp retracement in January has been the norm for years. Should inflation cool significantly going into the year, it would leave the ECB little reason to believe growth and price pressures above their tolerance levels will persist.

Previous: The Consumer Price Index for Germany surged 0.8 percent in December, the fastest pace of monthly growth in a year. However, the more closely watched annual gauge held below the ECB’s 2.0 percent limit for the fifth consecutive month. Price pressures have abated going into the end of the year as energy prices ease due to the unusually mild global weather and retailers hold off from rising prices too much going into the VAT tax hike. Despite the tame pressures through the end of the year though, monetary policy officials remain vigilant. ECB President Jean-Claude Trichet has voiced his concern over the volatile nature of crude prices and the evolution of wage negotiations. There are high expectations for wage talks going into the beginning of the year as union leaders recognize the fastest pace of national growth in six years and unemployment dropping the most since reunification during the same month. Both of these factors will encourage employees to demand a greater share of their company’s profits. Furthermore, looking to the objective read on money supply growth, the fastest pace of currency injection into the economy in 16 years in November suggests further tightening may be warranted.

UK Nationwide House Prices (JAN) (7:00GMT; 2:00EST)
                   (MoM)  (YoY)
Consensus:   0.8%  10.0%
Previous:       1.2%  10.5%

Outlook: Nationwide Building Society’s measure of UK house price growth is anticipated to ease in January, with the monthly rate slowing to 0.8 percent and the annual rate falling to 10.0 percent. Demand may finally be slowing for properties following three rate hikes by the Bank of England over the past six months, which brought the central bank’s overnight lending rate to 5.25 percent. Additionally, the British Bankers’ Association reported last week that mortgage approvals in December plunged 41 percent from the month prior. While it is possible that this was a one-off event, additional evidence of a marked slowdown in the housing sector could slash expectations for monetary policy tightening by the BOE in February.

Previous: UK house prices, as measured by Nationwide, rose more than expected in the month of December at a rate of 1.2%, bringing the annual rate to surge to a 23-month high of 10.5%. It appears that the two 25 basis point hikes by the Bank of England in 2006 had little effect on the booming sector, which has fed into broader based inflation pressures and kept BOE hawks on edge in early 2007. However, if diminishing affordability for potential homebuyers begins to make an impact, weakening demand could lead house prices to ease on their own later in the year.

US Consumer Confidence (JAN) (15:00 GMT; 10:00 EST)
Consensus: 110.0
Previous: 109.0

Outlook: US consumer confidence is expected to increase from 109 to 110 in the month of December, which would be the highest level of optimism since May 2002. Confidence should once again be boosted by the combination of low oil prices and jobless claims along with a stock market that is stabilizing not far from its record highs. The preliminary reading of consumer confidence as measured by the University of Michigan survey is also forecasting a more positive outlook. The UMich survey, which is a smaller sample set than the Conference Board survey hit a three year high in the month of January. If the Conference Board report follows suit, it should help the US dollar start the week on a firm footing.

Previous: US consumer confidence as measured by the Conference Board jumped from 105.3 to 109 in month of December to the strongest level since April 2006, bucking expectations for a decline. The strong stock market and low level of oil prices kept consumers optimistic about current conditions as well as the conditions for the months ahead. The consumer confidence report was also a fantastic leading indicator for the same month’s retail sales or consumer spending report. Taken together these reports point to the resilience of the US economy and indicates that there is only a slim chance for a rate cut by the Federal Reserve in the first half of the year.

New Zealand Trade Balance (DEC) (21:45 GMT; 16:45 EST)
Consensus: -NZ$0.415B
Previous: -NZ$0.785B

Outlook: In light of an appreciating New Zealand dollar, the Kiwi economy is expected to post another narrow deficit for the month of December. Already falling to a NZ$785 million shortfall, the gap is expected to thin to NZ$440 million in the month on rising exports once again. Comparably, the import component is once again expected to decline to NZ$3.27 billion as lower crude oil imports and a dip in consumer spending continue to support a lower deficit. Should expectations be met, the report would add to bullish sentiment on the Kiwi dollar in the near term. Previously, statements by the Reserve Bank of New Zealand on the detriments of a widening deficit sparked concern in the market, leading the currency pair lower to trade just above the 0.6900 figure. However, with the market environment still carry friendly, the narrowing gap would add to the attractiveness of Kiwi based investments and support an appreciating NZDUSD pair. Additionally, the report would give bulls some impetus as rates are expected to remain stable at 7.25 percent.

Previous: The monthly trade balance for New Zealand narrowed more than the consensus expectation of an NZ$840 million gap in November. For the month, the gap narrowed to NZ$785 million according to Statistics New Zealand bringing the more accepted annualized figure to NZ$6.01 billion, down from NZ$6.46 billion. Attributed to the smaller shortfall was a 10.6 percent rise in exports for the month as imports declined by 4.6 percent. Subsequently, economists witnessed an increase in exports of dairy products and timber as consumers, reeling from a record high interest rate, are beginning to curb spending habits. Notably, crude oil imports declined by 14 percent compared to a year ago The notion was confirmed as retail sales figures for the past two months have remained tepid, incidentally falling in the current month’s report. Ultimately, with consumer spending lower and the trade gap narrower, there may be less reason for the Reserve Bank of New Zealand to raise interest rates. However, inflationary pressures continue to keep central bankers on watch, suggesting in recent interviews of another pre-emptive hike in the short term.

John Kicklighter is a Currency Strategist at FXCM.