USD -This week's economic data releases will be fairly modest, yet, subject to considerable scrutiny, given that the renewed risk aversion and selloff of the stock markets at the end of last week. All eyes will be on Fed Chairman Ben Bernanke speaking at an annual conference in Jackson Hole, WY Friday. Investors are hopeful that his speech will shed some light on the scope for further quantitative easing over the coming months. Tomorrow, data for new home sales are due. After last week's gloomy figures for both housing starts and building permits, a 1.5% fall m/m is expected. Also due out are durable goods orders for July. Nondefense capital goods, excluding aircraft, have shown a strong upward trend, still, the figures remain very volatile. Also tomorrow, an increase indicating a positive movement in domestic demand is expected. On the same note, the second estimates of second-quarter GDP and private consumption are due. The GDP figures are expected to be revised downward, as trade figures for the quarter disappointed last week. Private consumption, in contrast, is expected to remain largely unchanged from the first release, but there might be scope for a positive surprise on the back of last week's encouraging retail sales figures. The previous release of the University of Michigan confidence index sent it to its lowest level in 30 years. A slight reversal on Friday is forecasted, driven mainly by the recent fall in gas prices. However, the overall picture still reflects that consumer confidence has taken a significant hit during the latest turmoil in financial markets.
EUR - The euro is trading in narrow ranges as markets pause from recent volatility. Amid no major European economic releases today, the single currency is just below $1.44 as summer ranges prevail. Last week saw the euro seesaw with investor's risk appetite as concerns of a global economic slowdown gripped markets. Worries that Europe is also slowing were reinforced after GDP for the region grew a modest 0.2% in the 2nd quarter, falling short of forecasts at 0.3% and down significantly from 0.8% in Q1. More disconcerting was that Germany, Europe's largest economy and the engine of growth to date, slowed to 0.1% from 0.8% in Q1. Additionally, with no resolution in sight to the fiscal woes troubling the regions at risk countries, prospects for the euro are likely to be limited until the region shows more convincing ability to tackle its difficulties or until its growth gets back on track.
GBP - Despite the fact the minutes from the Bank of England's most recent meeting showed policy makers abandoned their calls for monetary tightening, the pound appreciated 2.5% against the dollar last week. Jobless claims also increased the most in more the two years, adding credence to the BoE's decision to postpone tightening. This week is light on data as GDP is this week's only significant release on Friday. As such, technicals remain supportive as the pound continues to trade above its moving averages and sentiment remains balanced given investors' small net short futures positions.
JPY - JPY has weakened with market participants concerned about a continued threat of intervention. Last Friday, USDJPY fell to a new low of 75.95, a break of its previous low set on August 1 at 76.30. Official intervention is seen as less likely this week, given that the world's central bankers will be meeting in Jackson Hole on Friday. Japan's most recent intervention, on August 4, was a unilateral undertaking and any further attempts to weaken the yen could leave officials uncomfortable as they meet their peers later this week. JPY remains the largest held net long against the USD at $7.7bn, with a long to short ratio of over 75%.
CAD - The CAD begins the week on stronger footing as rebounding global financial markets encourages investors to ease back into riskier positions. The loonie has also been helped by the rising price of oil, as tension escalate in North Africa and the Middle East. Investors will take note of Canadian retail sales data due tomorrow that is expected to show a modest increase over last month. Also, GDP and durable goods data out of the US will drive the CAD. While a rebound in risk appetite will provide support for the CAD in the short term, increased expectations that the BoC will either leave interest rates on hold or even cut before the end of the year will limit any significant gains.
MXN - The Mexican peso remains range-bound last week despite retracing modestly today as speculation grew that the Federal Reserve may take further steps to stimulate the US economy. Over the weekend, Fed Chairman Bernanke hinted that the central bank might take on a third round of asset purchases to boost the economy, sparking a rally higher yielding assets. With QE3 possibly on its way, the peso along with other emerging market currencies should remain supported in the long term.
AUD - The AUD remains range-bound despite a rebound in investor confidence. Data out of both the US and Eurozone due later this week is expected to show that the broader global economy is in fact slowing, thus reducing demand for higher-yielding assets like the AUD. However, the AUD in particular, remains well supported by speculation that Japanese and Swiss authorities will take steps to stem their currencies strength. With the Australian economy's strong link to commodities, the AUD is increasingly being turned to as a safe-haven asset, albeit tentatively.