US Dollar: Will Next Week Spell Disaster for the Greenback?
Another day, another dollar as the greenback was able to brush off much worse than expected housing data to remain within respectable trading distance against major counterparts ahead of the holiday weekend. Notably, against the Euro, the dollar lost approximately 40 pips shortly following the National Association of Realtors report this morning, but retraced quite a bit closing just 15 pips above yesterday’s close late in New York. For the record, US existing homes sales dropped worse than expected, to the lowest level in four years at a negative 2.6 percent. Subsequently, the annual rate sank to 5.99 million last month from the 6.15 million units in the month of March. Although coming as a relative monthly surprise, the report wasn’t all too different from the details of yesterday’s survey. In the new home sales report yesterday, it was noted that sellers slashed prices considerably in order to close on deals for the month. Now this time around, in existing homes, sellers will likely have to do the same in order to make closings happen. The report also suggests that supply for subprime loans may be thin by lenders on the account of rising defaults in the sector. As a result, both surveys are, incidentally, likely to keep traders and market observers focused on consumer spending figures as ripple effects from the housing market are still yet to truly emerge in the US economy. The bearish sentiment is likely to be echoed throughout this week as there is a bevy of US surveys to contend with. Notably, setting aside two consumer confidence surveys and a manufacturing report, focus will likely land on the non-farm payrolls figure and GDP report. Although FOMC minutes will play a part in price action, the contribution is seen as quite minimal as policy makers have been rather transparent lately on any near term rate cuts. Subsequently, consensus estimates are looking once again for six-figure employment growth and stable expansion in the world’s largest economy. These reports, should they be to the downside, will definitively overshadow the rest of the week’s docket, spelling disaster for the US dollar.

Euro: Consumers Still Confident After VAT
In a word, resilience. That’s what German consumers are exuding far after the government’s value added tax reform was placed into effect at the beginning of the year. The sentiment was reflected in this month’s GfK AG’s confidence index. A survey, based on 2,000 people, the report jumped to the highest level in 5 months and was widely in line with previously printed business confidence surveys. Incidentally, the sub-index component that measures the current economic outlook rose to 69.5, the highest level on record. Bolstered by employment, it seems that citizens are more opt to spending habits that will likely push prices higher, in the longer term. The notion boosted speculation on the day as traders and market participants continue to price in the likely rate hike coming next month.

British Pound: Revisions to 1Q GDP Prop the Pound
The British pound has continued to hold up well above 1.9800 as the currency consolidates following Wednesday’s hawkish monetary policy meeting minutes. With the minutes alluding to the possibility of another interest rate hike in July or August, traders have reversed a good portion of their pound shorts. The second release of first quarter GDP backed the bullish bias, as the annual rate of growth was revised up to 2.9 percent from 2.8 percent – signaling a very mild slowdown from 3.0 percent in the fourth quarter. What was even more encouraging was the breakdown, as private consumption held strong, outpacing a pickup in government spending. On the other hand, exports were revised even lower to -0.6 percent from -0.2 percent, as the appreciation of the British pound put a dent in foreign demand for UK products. Cable could be in for some trouble next week, as almost every indicator - including GfK Consumer Confidence, Nationwide House Prices, and PMI Manufacturing – is due to ease back.

Japanese Yen: CPI Still Signals Deflation
Strengthening in the Asian session, the Japanese yen went on to weaken throughout the day as data once again reiterated that the economy hinges on the edge negative price growth. Both Tokyo and National core CPI remained negative on an annual basis, with tepid wage growth putting a cap on price pressures in the consumer arena. Nevertheless, Japanese officials vehemenently deny that the country is in deflation, but until CPI actually starts to show some positive results, there is little hope that the Bank of Japan will be able to raise rates in the near term. Looking ahead to next week, a spate of spending data will hit the tape, all of which are anticipated to improve. If we see positive surprises in Retail Trade and Overall Household Spending on the back of stronger consumption in the first quarter GDP report, the yen may start to react to fundamentals in a more consistent manner to finally give the currency a reprieve.

Commodity Currencies: Canadian Dollar Still the Currency to Beat
The Canadian dollar proved to be the currency to beat, with USDCAD falling to new 29 1/2 year lows as a strike at Nigeria’s state-owned oil company and an attack on a refinery in the Niger Delta sent oil prices rocketing higher. Next week could be make or break for the Canadian dollar, with the Bank of Canada meeting early in the week followed by an expected jump in first quarter GDP. The central bank is not anticipated to adjust policy, and with no statement released, the meeting should prove to be a non-event. GDP could lead to a spike in volatility, however, as expansion is estimated to rocket to 3.6 percent. If we continue to see such encouraging growth along with mounting price pressures, traders could be waiting quite a while for USDCAD to turn. Meanwhile, the high-yielding Australian and New Zealand dollars played on the US dollar’s turf today, seeing little in the way of local economic data, as both the Aussia and Kiwi spiked higher early in the New York session only to ease back to previous levels. The only release from the region was the Australian Conference Board Leading Index, which rose 0.5 percent on the back of solid consumer spending after surging 1.4 percent the month prior. Next week, data on both the Aussie and Kiwi sides will be relatively thin, but price action could surge on Australian Retail Sales and the Trade Balance.

Kathy Lien is the Chief Currency Strategist at FXCM.