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- Euro, British Pound Fall, But EUR/USD and GBP/USD Hold to Trading Ranges
- Canadian Dollar Mixed as Employment Fall Less Than Expected, Trade Deficit Widens
- Swiss Franc Still Range Bound - SNB Intervention Risk Looms

US Dollar, Japanese Yen Gain as Markets Remain Uneasy, US Consumer Confidence Falls
The US dollar and Japanese yen made headway once again on Friday as risk appetite remained uneasy. There were a variety of US economic releases, which offered mixed results. First, the US trade deficit unexpectedly narrowed to $25.962 billion during May thanks to a 0.6 percent drop in imports and a 1.6 percent rise in exports as the US dollar plunged. Meanwhile, import prices rose for the fourth straight month in June at a rate of 3.2 percent, which was the single biggest monthly increase since November 2007. However, deflation concerns weren't completely pushed aside as the year-over-year rate of import price growth remained near the record low of -17.5 percent at -17.4 percent. Finally, the Reuters/University of Michigan consumer confidence index unexpectedly dove down to 64.6 in July from 70.8, with a breakdown of the report showing that sentiment soured on both current conditions and the economic outlook.

Looking ahead to next week, the Commerce Department is forecasted to report on Tuesday that US retail sales rose 0.4 percent in June, which would mark the second straight improvement, and excluding autos, retail sales are anticipated to increase by 0.5 percent. However, there is potential for a worse-than-expected result, as the International Council of Shopping Centers (ICSC) said that same-store sales tumbled 5.1 percent in June from a year earlier, which was the sharpest decline since March.

The main event risk for the US dollar on Wednesday will be the release of the minutes from the Federal Reserve's last meeting on June 24. Following that meeting, the markets saw no surprises from the Federal Open Market Committee (FOMC), as they left the fed funds target range at 0.0 percent - 0.25 percent and made no changes to their quantitative easing (QE) program. The status of QE is high on the minds of traders, so the comments contained within the minutes will be scoured for indications that they will increase their purchases of Treasuries, and if they are found, the US dollar could fall sharply.

Euro, British Pound Fall, But EUR/USD and GBP/USD Hold to Trading Ranges
The euro and British pound took a hit on Friday, but from a longer-term perspective, pairs like EURUSD and GBPUSD remain range bound and we have yet to see any sort of directional break, which differs significantly from the JPY crosses that have broken lower. UK economic data highlighted the deflationary risks plaguing the nation as the UK producer output price index fell by 1.2 percent in June from a year earlier, the most since 2001, while producer input prices plunged 11 percent during the same period, the sharpest drop since 1997.

The data suggests that next Tuesday's release of the UK consumer price index will also reflect lessening price pressures for the month of June. Indeed, the annual rate of CPI growth is forecasted to fall to a nearly two-year low of 1.8 percent from 2.2 percent, keeping inflation within the central bank's acceptable range of 1 percent - 3 percent, but below their 2 percent target. If CPI falls more than projected, the British pound could pull back sharply as the markets will anticipate that the BOE will expand their quantitative easing efforts even further in August. On the other hand, if CPI holds strong, the currency could rally in response.

Canadian Dollar Mixed as Employment Fall Less Than Expected, Trade Deficit Widens
The Canadian dollar was the third strongest of the majors, trailing behind the US dollar and Japanese yen, as Canadian economic data was a bit better than expected. The net employment change for the month of June fell by 7,400, but this was much better than forecasts, which had called for a drop of 35,000. Likewise, the unemployment rate rose less than anticipated, but still hit a nine-year high of 8.6 percent. A breakdown of the report shows that any improvements were due to increasing employment via part-time jobs or self-employment, neither of which bode well for increased consumption down the line. Meanwhile, Canada's merchandise trade balance fell to -$C1.421 billion in May as exports to the US fell to the lowest since October 1997.

Next Friday, headline CPI for June is projected to fall to an annual rate of -0.3 percent, while the BOC's core measure is projected to hold fairly steady at 1.9 percent, down from 2.0 percent. Ultimately, the data will likely show that the bulk of price declines is due purely to falling commodity costs, and as long as the core measures don't fall sharply, the Canadian dollar shouldn't react too strongly. However, if broader price pressures start to fall more steeply, concerns about deflation may arise and weigh on the currency.

Swiss Franc Still Range Bound - SNB Intervention Risk Looms
EUR/CHF remains within an intraday falling channel formation, with support now at 1.5110 and resistance at 1.5200. This pair is important to watch as the Swiss National Bank (SNB) has cited the appreciation of the Swiss franc against the euro as a risk for deflation, and has physically intervened in the currency markets within the past two weeks. Also, last Thursday, SNB directorate member Thomas Jordan said that they continue to consider interventions to prevent an excessive rise in the Swiss franc. As a result, traders should beware that the further EUR/CHF falls, the greater the potential for intervention grows.

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ECONOMIC DATA

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Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com