US Dollar Succumbs To Another Round Of Housing Data
The US dollar softened throughout the New York session as mixed reports from the housing sector reaffirmed much of the dour sentiment on everything from construction to subprime loans. Housing starts fell in line with expectations by 2.1 percent to 1474K from an upwardly revised 1506K, signaling that homebuilders are not initiating projects as quickly as in previous months. However, building permits jumped a greater-than-expected 3.0 percent to 1501K from an upwardly revised 1457K. As a leading indicator for starts, the data points to a pick up in construction during the summer. Given the lack of solid demand for properties, these building plans will only contribute further to softness sector-wide as inventories will only rise further, and prices will have to be slashed in order to liquidate. The breakdown of the data is worth nothing as well: Improvements were contained to multi-family units - which tend to be rented out - while declines were seen across the board for single-family units - which are typically mortgaged. Although the multi-family index tends to be highly volatile, this will be a factor worth watching as potential homeowners seem to be shifting towards more affordable rentals and away from expensive loans as mortgage rates rise.

Japanese Business Confidence Hits Five-Month High
Although economic data was positive for the day, it seemed that mild profit taking helped the yen gain footing against the greenback not a shift to bullish sentiment. However, there was plenty to be bullish about.. Department store sales in both Tokyo and Nationwide improved in the month of May, reversing more negative figures for the previous month. Granted, the improvements didn’t necessarily reflect stronger consumption by domestic citizens, however, it did signal a potential pickup in spending in the summer months to come. Additionally, Japanese business confidence was also improved. Hitting a five month high in June, business confidence advanced as economic growth and a depreciated yen helped to boost the formidable export sector. The recent sentiment was reflected in the monthly Tankan survey (not to be confused with the quarterly government report) released by Reuters. Although smaller in scope, the positive results are likely to lead to an improved quarterly assessment by the Bank of Japan set for release on July 2nd. Incidentally, the underlying yen did receive a boost from concerns over comments made by Governor Fukui in the overnight session. Noting that he is constantly monitoring risks in the market, Fukui noted that excessive risk positioning in the market could lead to a sharp sell off. Obviously targeting the now famed carry trade, speculators pared back on some positioning on liquidity concerns.

Euro Gets The Slip On Sour Sentiment, Makes Swift Recovery
The Euro dropped back below 1.3400 during European trading after the ZEW survey reflected surprisingly dour economic outlooks amongst investors. Both the German and Euro-zone ZEW figures unexpectedly fell back to 20.3 and 19.0, respectively, as the European Central Bank’s overtly hawkish stance has started to take its toll on optimism. Nevertheless, the euro made a comeback over the course of the US session as the readings still hold at encouraging levels and German sentiment regarding current conditions actually reached another record high of 88.7. Overall, the status of Euro-zone expansion appears to be keeping pace, as the labor market remains tight, exports continue to thrive, and consumption grows. However, these factors combined with inflation holding at 1.9 percent, just below the ECB’s ceiling of 2.0 percent, may not be enough to initiate policy action within the next few months. Given the fairly aggressive series of rate hikes that the ECB has enacted over the past year, the end of the tightening cycle may be nearing, especially if price pressures ease in line with the central bank’s outlook.

Will The Pound See 2.0000 Again?
No economic data to warrant any move in the pound sterling as the underlying currency continued to make haste against the US dollar counter. Confidently breaking through the 1.9850 in the overnight session, the British pound was able to hit a 1.9888 session high before being taken back a bit in the New York afternoon. All eyes are now fixated on tomorrow’s Bank of England meeting minutes, as reactions are likely going to make or break the currency. With little to no data left for the week, momentum is going to carry (no pun intended) the pound sterling higher or lower dependant on the revealed vote in this month’s meeting. As a result, rest assured that if the vote is unanimous or continuously hawkish, market consensus of a revisit to 2.0000 will unfold heading into the weekend. However, should a lone dissenter arise from the ranks, the sentiment is likely to shift as pound bidders will be left racing for the door. This will set up near term support below 1.9850.

All Eyes On Canadian Consumer Price, Will BoC Raise Rates?
News and price action were relatively centered on the Canadian dollar during the session today. Oddly enough, traders weren’t expecting the underlying CAD to make a bold move in the summer months against the US dollar, with expectations standing next to nil on a move by the Bank of Canada. However, now with domestic expansion churning away and consumer price inflation ticking higher, market sentiment is on the side of not one, but two possible rate hikes by the end of the year. The notion was confirmed following the consumer price index released in the New York morning. Rising in line with consensus estimates, the core figures ticked higher than the 0.2 percent figure seen in the month of April. The monthly assessment led the core annualized figure higher, printing a 2.2 percent pace. Now clearly above the benchmark target set by the central bank, policy makers are expected to move on July 10th, the scheduled time for the next meeting. With economic data apparently in favor of the decision, no one should be surprised should we see a clear test of 1.0500 in the near term.

Kathy Lien is the Chief Currency Strategist at FXCM.