Euro-Zone Retail Sales (DEC) (10:00GMT; 5:00EST)
                  (MoM)   (YoY)
Consensus: 1.1%     2.3%
Previous:    0.5%      1.3%

Outlook: Retail sales in the Euro-zone are expected to jump 1.1 percent in December after posting at a tepid 0.5 percent in the month prior. Shoppers are likely to have purchased big-ticket items not only in the holiday season, but also ahead of Germany’s VAT hike to 19 percent from 16 percent in January. Major evidence of this lies in the German retail sales report for the same month, as the figure jumped a seasonally adjusted 2.5 percent in December. As the Euro-zone’s largest economy, results of the German sales report are a relatively reliable leading indicator of the headline index. Also adding upside risk to the Euro-zone figure is the status of the labor market, which has continued to tighten with the unemployment rate slipping to 7.5 percent from 7.6 percent in December. However, the start of 2007 may easily find consumption taking a turn for the worst, as retail PMI readings for January indicated contraction in the sector at a dismally low at 47.9 – the lowest since March 2006.

Previous: Euro-zone retail sales rose in line with expectations during the month of November at a rate of 0.5 percent. A tightening labor market helped to boost consumer confidence and also fueled broad based economic expansion throughout the Euro-zone, as both domestic and foreign demand for products from the 13-member region surged. Metro AG, Germany's largest retailer, reported in January that sales rose 10 percent in the fourth quarter, exceeding analysts' estimates. Overall, the report left the European Central Bank maintaining a hawkish edge, with the market pricing in a March rate hike to 3.75 percent.

German Factory Orders (MoM) (DEC) (11:00 GMT; 06:00 EST)
Consensus: 0.5%
Previous: 1.5%

Outlook: Orders at German factory are expected to have grown 0.5 percent in December. Alone this indicator will be useful in gauging demand for manufactured goods; but it also holds the distinction of measuring business conditions going into the VAT hike at the turn of the year. While consumer demand has a pull through affect on factory activity, demand from other businesses is often felt through direct channels. From related data in December, demand looks as if it was rather robust. According to the IFO Business Climate indicator, confidence among managers rose to its highest level since Reunification in 1990. More promising, a manufacturing survey for the same period reported the highest reading on sentiment in six months, with specific gains in both New and Export Orders. Furthermore, should the consumer come into question, their contribution will be made through with strong numbers. Equipped with a strong employment addition and promising wage negotiations, retail sales surged 2.4 percent in December, the most since June 2004. However, this may be just an effect of consumers making their purchases ahead of the tax hike. Should demand for factory goods survive the burden of a 3 percentage point tax hike, employment and wages may fare equally well offering the economy sufficient momentum to weather unfavorable policy shift.

Previous: The volatile German factory orders indicator reported a 1.5 percent rise in November, subsequently the first increase in three months. Orders and factory activity grew over the month on the basis of demand from both consumers and other firms. Though retail sales fell 0.7 percent over the same period, spending has pepped up going into the end of the year as German consumers look to move purchases forward so as to avoid the biggest tax hike the nation has seen since WWII. Further improving demand was a 19.5 percent increase in exports year over year. Looking to activity levels, a few key groups were leading the way. Related to consumers, construction activity jumped 6.2 percent with the help of one of the warmest winters since record started in 1902 and a 1.6 percent pick up in auto production. Also, spurred by demand from firms looking to use their increased revenues, production of investment goods advanced 2.6 percent.

Canadian Building Permits (MoM) (DEC) (13:30 GMT; 08:30 EST)
Consensus: -2.0%
Previous: 3.0%

Outlook: Canadian building permits will likely cool from their November pace, with analysts predicting a 2 percent decline through December. The domestic housing market has stolen the spotlight as of late, with robust gains buoying otherwise sluggish economic growth through 2006. As such, Canadian dollar bulls will hope that tomorrow’s print will beat consensus estimates and surprise to the upside. Given median forecasts of a considerable drop, it seems that risks may remain to the upside for the Canadian dollar (to the downside for the USDCAD). Otherwise, we could see the Loonie traded even further off of 13-month lows against its US counterpart.

Previous: Building permits rose to a record through November, boosted by robust new-home sales and institutional construction. The stout 3 percent monthly gain leaves overall permits 11.4 percent higher on a year-over-year basis. A clear push in social spending was likewise a driving force, with non-residential permits catapulting 11.1 percent higher to an all-time high. The gains may prove unsustainable, however, with subsequent months said to see a slowdown in new construction. Traders will look to tomorrow’s figures for clearer indication, with December’s building permits to precede Wednesday’s key Housing Starts results.

Reserve Bank of Australia Rate Decision (22:30 GMT; 17:30 EST)
Consensus: 6.25%
Previous: 6.25%

Outlook: The Reserve Bank of Australia, headed by Governor Glenn Stevens, is expected to hold the nation’s overnight cash rate at 6.25 percent. Since the policy group’s decision to pass on a change in rates in early December, economic data further stabilized; which many economists take as a sign that the central bank’s previous three hikes in May, August and November are taking effect. Taking the lead for growth numbers, third quarter GDP advanced at an annualized 2.2 percent pace. While this was a robust pace, there has been speculation that a cooling in the consumer and housing sectors could put the breaks on expansion through the final quarter. However, recent data clouds such an outlook. In December, employers took on 44,600 new hires, following a 43,000 addition in the previous month. This has had the effect of keeping the jobless rate at a 31-year low while boosting consumer confidence 7.3 percent in January according to the Westpac survey. These high levels of confidence and employment have further translated into fourth quarter retail sales growth of 1.3 percent. Furthermore, housing data has shown evidence of further momentum. According to the HIA, new home sales jumped 6 percent in December, even as building permits in November sank 1.9 percent. The same type of argument has been raised with inflation. In the final months of 2006, producer and consumer price pressures have eased. However, at 3.5 percent at the factory level and 3.3 percent in the consume basket, both rates are beyond the central bank’s target rate. Considering the divergence between current data and expectations for the future, a shift from policy makers would seem a premature, especially in the wake of a hike only a few months ago.

John Kicklighter is a Currency Strategist at FXCM.