The FX markets are as frozen as the streets of New York with the euro enjoying a mild continuation move from Friday's strong rally supported by speculation that the Fed will maintain the "measured" approach to rate hikes in the upcoming FOMC meeting on February 2nd. Over the week-end an article in Business Week sparked doubts that the Fed will become materially more hawkish anytime soon, when it stated that Chairman Greenspan is not worried about inflation and may even pass on a rate hike during one of the upcoming meetings. The issue raises a much larger question which we have started to ask - has US growth peaked? It is much too soon to tell, but last weeks disappointing Empire and Philly Fed numbers offered little solace to dollar longs.
Meanwhile Euro-zone data is slightly firmer as Italian Retail sales proved positive for the first time since June recording a 0.2% gain against an expectation of -0.2% loss. EZ Industrial New Orders exploded to a 12.2% gain versus consensus number of only 5.2%. The rise was fueled by a 9% gain in transport sector as Airbus continues to take market share away from Boeing.
Although we noted Friday that the dollar most likely completed it's rally for the time being, we are far from certain if the euro has commenced an up move of its own. In order for the euro to reestablish dominance it must convincingly recapture last week's high of 1.3117 set before the TICS data release. It's quite possible that the two units will wage a war of attrition for the rest of the week with the EUR/USD pair moving in a narrow range as the market looks for a new catalyst to spark the next move.