FX Awaits Data, Bernanke by Korman Tam

At 4:00 AM Germany August WPI m/m (exp n/f, prev 0.4%)
Germany August WPI y/y (exp n/f, prev 2.6%)
At 4:30 AM UK July Trade Balance (exp –6.4 bln stg, prev –6.3 bln stg)
At 8:15 AM` Canada August Housing Starts (exp 220k units, prev 215.6k units)
At 8:30 AM Canada July New Housing Price Index (exp 0.6%, prev 0.7%)
US July Trade Deficit (exp $59 bln, prev 58.14 bln)
Canada July Trade Surplus (exp C$5.0 bln, prev C$ 5.3 bln)

The currency market remains biased for a softer dollar amid a dearth of US economic data at the start of the week – with commentary from Federal Reserve members garnering the lion’s share of traders’ attention. Ahead of the blackout period before next week’s FOMC meeting, a barrage of comments from Fed speakers revealed mixed sentiment among its members providing little insight into the coming deliberations. However, market participants are largely anticipating a 25-basis point cut in the Fed funds rate with some even calling for a preemptive 50-basis point reduction to jumpstart the economy and stave off potential recession.

Earlier in the session, Fed governor Mishkin sounded a dovish tone in his commentary, saying that risks to the inflation outlook is now more balanced given the greater downside risks to growth. He added that the Fed must remain vigilant on inflation, but it also needs to be attentive to keeping demand from falling beneath supply as well. His comments echo a similar tone to Lockhart’s and Yellen’s, who both suggested that policy should incorporate the recent downturn in US economic fundamentals. Lockhart said the recent payrolls number is very important and must be taken very seriously. Moreover, he said another key piece of economic data that will play a particularly key role in policy deliberations is consumer-spending data. This week’s retail sales report on Friday will bear additional significance since it will be the last piece of key data before the Fed’s meeting. Furthermore, Fed Chairman Bernanke’s comments on Tuesday will be closely scrutinized, who is scheduled to speak at the Bundesbank at 11:00 am.

Economic data from the US will see the July trade deficit, which is expected to creep higher to $59 billion, up from June at $58.14 billion.