US Dollar: Traders Prepare for a Heavy-Hitting Calendar
The absence of liquidity state-side, as well as from Germany and the UK, kept the majors in extremely tight ranges through the whole of Monday. However, as the world turns and the major FX hubs come back on line, the market will be presented with more than enough fundamental data from the US economic calendar to make up for the shortened week. The dollar will be put back into the grinder on Tuesday with the Conference Board's consumer confidence survey for May. Talking their direction from the University of Michigan's report for the same month, economists expect tomorrow's confidence number to improve slightly to cross the wires at 105.0. Given the tame predictions, the indicator may not be the rally call that encourages bulls to drive the currency through resistance levels in its many pairings; but it certainly has meaning for its long-term strength. The consumer has single-handedly carried growth and inflation through the worst housing slump in 15 years, wavering factory activity and dried up business investment. Therefore, the potential energy this indicator holds for the markets is considerable - even if it does not translate into immediate price action. On the other hand, considering the aspects more pertinent to the American consumer this month, there is a real risk that the survey diverges considerably from expectations. Clearly in favor of the modest pickup the official consensus is calling for is the strong performance of the stock market. The Dow Jones Industrial Average has closed at numerous record highs over the past few weeks and the media has not missed one of them. Perhaps turning a little murkier, the labor market is expected to be a net contributor as well. Initial jobless claims over the past few weeks have marked four-month lows; though the lighter payroll numbers and deceleration in wage growth over the past few months should dampen the positive response. In clear contradiction to optimists will be the steady degradation of the housing market and record gasoline prices.

Euro: German Inflation Will Meet The Return of Liquidity
Due to the Whit Monday holiday, half of the 18 western European markets were closed Monday morning. Among the closures was Euro Zone's largest member economy: Germany. However, when the lights come back on in European banks tomorrow, the German calendar will also be the top contributor to euro-based price action. Scheduled for release tomorrow (though as usually, there is no official time attached to it) is the preliminary reading of the Consumer Price Index for May. With the ECB meeting on June 6th, the inflation gauge will offer a last second tweak to rate speculation. As it stands, the market is fully pricing in a 25 basis point hike next week that would bring the overnight lending rate to 4.00 percent target. On the other hand, where the central bank goes from there is as unclear as ever.

British Pound: Consolidation Could Bring a Breakout
The British pound has done nothing but consolidate gains above 1.9800 following last Wednesday’s rally as all signs pointed to another Bank of England rate hike. However, Cable could make a turn for the worst this week as almost every indicator - including GfK Consumer Confidence, Nationwide House Prices, and PMI Manufacturing – is due to ease back. GfK consumer confidence is predicted to slip to -7 from -6 as persistent inflation and rising interest rates have put a dent in sentiment. Nationwide house prices are also on tap, and the figure could help confirm or negate recent signals that sky high property values and increased borrowing costs are finally taking a toll on demand. Finally, PMI manufacturing is expected to ease back very slightly, but should still reflect strength in the slowly recovering sector. Without encouraging fundamental data available to keep speculation of further BOE tightening afloat, the British pound may have nowhere to go but down.

Japanese Yen: Carry-ed Away
Stronger CPI nor hawkish commentary from the Bank of Japan have been able to revive the Japanese yen, as carry trades take their toll on the low-yielding currency. News over the weekend that a member of Prime Minister Shinzo Abe’s cabinet linked to a series of political funding scandals committed suicide barely made an impact on the yen either, though Japanese equity markets saw domestically focused stocks take a hit. Over the course of this week, traders will be waiting to see if a round of encouraging economic will give the currency a reprieve. 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. However, it’s even more likely that a major event, such as yuan revaluation, will need to take place before the markets witness a significant unwinding of carry trades.

Commodity Currencies: End of the Line for the Canadian Dollar?
Canadian dollar strength remains, though declines in the USDCAD pair appear to have taken a breather as the end of a two-day strike at Nigeria's state-run oil company led crude for July delivery to fall as much as 1.3 percent to $64.36 a barrel in after-hours trading on the New York Mercantile Exchange. Furthermore, major event risk for the currency this week could help initiate a turn for USDCAD. First, the Bank of Canada is anticipated to leave rates steady at 4.25 percent, but markets are also expected a hawkish policy statement as inflation remains elevated. Should the central bank actually signal that they are content with leaving rates steady or foresee a drop in CPI in the near-term, bulls may turn their back on the severely overbought Canadian dollar. On the other hand, an overtly hawkish Bank of Canada policy statement followed by an expected surge in first quarter GDP on Thursday could prove to be disastrous for USDCAD, as Loonie bulls will continue to reign. The high-yielding Australian and New Zealand dollars, on the other hand, will likely take their cues from Australian economic data as well as commodity price action. Retail sales and the trade balance are both predicted to improve upon release this week, though the appreciation of the Australian dollar could put exports – and thus the trade balance – at risk.

Kathy Lien is the Chief Currency Strategist at FXCM.