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This week the US Dollar will look to recover from losses sustained on Friday due to mortgage market worries and new record high oil prices.

The Dollar was sold off because of concerns that losses at Fannie Mae and Freddie Mac may spiral out of control and see the lenders nationalized. The big winner from the news was the Australian Dollar, hitting fresh 25-year highs against the Greenback.

Oil was driven higher (above $147 a barrel) on speculation that Israel may attack Iran. This helped the Canadian Dollar recover from much worse than expected employment data. The Canadian Labor market shed 5K jobs in June while it was expected to create 10K. This contributed to an increase in the Unemployment Rate from 6.1% to 6.2%.

This week we have a jam packed economic calendar with high volatility events right from the off. We begin the week on Sunday night with Core Retail Sales and Retail Sales from New Zealand. The Core number is expected to increase by 0.5% MoM while Retail Sales are expected to moderate by 0.1% on a monthly basis.

Monday: On Monday morning the main focus will be UK PPI Input MoM. The monthly rate is expected to come in at 2.5%, less than last month's 3.8%. However, this will still see the YoY number climb to 28.9%.

The rest of the London and New York sessions will be fairly quiet with Industrial Production from the Eurozone and the Fed Governors open meeting and vote on mortgage rule changes.

At 23:45 Monday night we will see further high impact data from New Zealand. This time it is the CPI QoQ. Growth in the Consumer Price Index is expected to climb to 1.4% QoQ.

Tuesday: Tuesday promises to be a busy day with high volatility events from the UK, Australia, Japan, Eurozone, US and Canada. We begin the day at 00:01 with the UK's RICS House Price Balance.  This survey measures the percentage of chartered surveyors reporting a reduction in house prices in their area. The market is anticipating that 93.8% of respondents will register a price drop. At 09:30 we will see the UK CPI with the YoY rate expected to climb to 3.6% pushing the data further above the BOE's 2.0% threshold. Not surprisingly Core CPI is expected to remain at 1.5% indicating that food and energy costs remain the main driving factors of consumer inflation.

At 02:30 the RBA will release the minutes from their last Interest Rate Meeting. Traders will be interested to see the RBA's views on slowing economic growth and the chances of any more interest rate hikes in the near future. The Australian Dollar has been trading at or near 25-year highs against the US Dollar for some time now in the face of strong commodity prices and a favourable interest rate gap.

Japanese Yen traders will be focussed on the Interest Rate Announcement and the accompanying BOJ Press Conference. With interest rates expected to remain steady at 0.50% more focus will fall on the press conference. Traders will be keen to see if the BOJ expects economic growth to remain relatively flat. It is expected that interest rates will remain at 0.50% for the foreseeable future.

Although the Euro is likely to react more to data from the US than its own economic data there is one high volatility release due. The German ZEW Economic Sentiment  will probably fall again to -55.5.

It will be a busy day in the US with Core Retail Sales, Retail Sales and PPI at 13:30 followed by Bernanke's Testimony to the Senate Committee on Banking, Housing and Urban Affairs at 15:00. Retail Sales are expected to moderate slightly from May's impressive growth with the Core figure expected at 0.9% and Retail Sales at 0.4%. Elsewhere PPI is expected at 1.3% MoM, down from the 1.4% growth in May.

Canada will join Japan in making its latest Interest Rate Statement. Rates are expected to remain on hold at 3.00% but with the BOC's bias towards cutting rates traders will be on the lookout for any surprise cuts. The rate statement will also be closely scrutinised for changes in the language that may indicate rate moves in the months to come.

Further high volatility events for the week are as follows:

Wednesday:
04:05 RBA Governor Stevens Speaks
09:30 UK Claimant Count Change
10:00 Eurozone CPI YoY
13:30 US Core CPI MoM
14:00 TIC Net Long-Term Transactions
15:00 Bernanke Testifies before the House Committee on Financial Services
19:00 FOMC Meeting Minutes

Thursday:
BOC Monetary Policy Report
BOC Governor Carney Speaks

Visual Analysis and Historical Data
This week the visual analysis and historical data tool will support the US PPI and US Core CPI data releases.

This week the market awaits commentary from Fed speakers, including Bernanke, regarding future monetary policy. Economists are interested to see whether the Fed sees inflation as more of a risk than a weak economy ahead of future interest rate meetings. The question remains: can the US economy survive an inflation fighting rate hike without falling into recession.

This comes on the back of comments last week from the ECB. The Eurozone increased interest rates to 4.25% last Thursday but stated that they don’t expect any future need for further hikes. This resulted in ‘buy on rumour sell on fact’ trading in the EURUSD. Post data the currency pair fell from 1.5908 to a Thursday low of 1.5681.

Early focus in the new week will be on the reaction from US traders following the dismal US Labor market data. Non-Farm Employment Change was in negative territory once again (-62K), Unemployment Rate remained at 5.5% and Initial Jobless Claims climbed above 400K for the second time this year. US markets were closed on Friday for the Independence Day Holiday so it will be interesting to see how traders digest the news after the long weekend.

Monday, Tuesday and Wednesday this week will see a 3-day G8 meeting in Hokkaido, Japan. The meeting is expected to be dominated by climate change, food and commodity prices. There have been pre-meeting comments from Japan and the US blaming a weak US Dollar for inflated energy prices. Traders are waiting to see if G8 members’ comments are strong enough to support a dollar rally on speculation of central bank intervention.

In other news this week, high volatility economic data from the US takes a bit of a breather. The main events will be Fed Chairman Bernanke speech at 13:00 on Tuesday and his testimony before the House of Representatives Committee on Financial Services on Thursday at 15:00. Traders will be looking for hints as to the Fed’s concern over inflation.

The US is also due Pending Home Sales at 15:00 on Tuesday, Initial Jobless Claims at 13:30 on Thursday (more volatility than usual is expected due to the +400K reading last week) and the Trade Balance and Preliminary Michigan Sentiment at 13:30 and 14:55 respectively. The only data that is expected to show any improvement is Initial Jobless Claims where a slight moderation to 397K is expected.

Elsewhere the Canadian economy steels the spotlight with no fewer than five high volatility releases due. Monday will see Building Permits (13:30) and the BOC Business Outlook Survey (15:00). Following this we will see Employment Change and Unemployment Rate at 12:00 and the Canadian Trade Balance at 13:30 on Friday.

Additional high volatility events this week are as follows (all times are UK DST):

Monday
UK Industrial Production (09:30)
NZIER Business Confidence (23:00)

Tuesday
Halifax House Price Index (NTS)

Wednesday
Australian Home Loans (02:30)

Thursday
Australian Employment Change (02:30)
Australian Unemployment Rate (02:30)
BOE Interest Rate Statement (12:00)

The US Dollar ended last week broadly lower against the majors on worse than expected economic data and reduced speculation of a Fed Interest rate hike. In fact the greenback traded lower against the Japanese Yen, Swiss Franc, Euro, GB Pound, Canadian Dollar and the Australian Dollar, as it was unable to hold on to all of the prior week’s strength.

On the data front the USD was not helped by Housing Starts falling to a 17 year low or the fact that the Empire State Business Conditions Index, Building Permits, Philly Fed Index, Industrial Production, Capacity Utilization, Current Account and Initial Jobless Claims all pointed towards economic slowdown.

Interest rate futures are now showing just an 8% chance that the FOMC will increase rates this month. As you would expect the FOMC Interest Rate Statement on Wednesday is the major focus for the week. Particular attention will be paid to the Fed’s views on inflation risk and economic slowdown. Remember that the Fed’s traditional tool for dealing with inflation is a rate hike. However, increased interest rates may put too much pressure on an already weakening economy.

The Federal Reserve Open Market Committee is expected to leave the Federal Funds Rate unchanged at 2.00% this week.

Aside from the interest rate announcement we have high volatility housing data from the US this week. On Wednesday, New Home Sales are expected to contract once more to 515K. This will be followed by Existing Home Sales data on Thursday that is expected to post an increase to 4.96M annualized.

The coming week promises to be fairly quiet from an economic news standpoint with the following high volatility events scheduled:

Monday June 23^rd - German Ifo Business Climate Index
Wednesday June 25^th - ECB President Trichet Speaks, US Core Durable Goods Orders, New Zealand Current Account
Thursday June 26^th - BOE MPC Treasury Committee Hearings, New Zealand GDP & Trade Balance

Visual Analysis & Historical Data

Once again our VA tool will be available for following major news releases. The US housing duo of New Home Sales and Existing Home Sales will both be featured.