A very sparse economic calendar in the Euro-zone and President's Day holiday in the US are keeping the currency markets quiet tonight with the EUR/USD carving 20 pip ranges since the start of Asia trade. With only Italian CPI (which printed modestly less than expectation) to occupy trader's attention, the markets are treading water as order flow is thin and the geo-political situation over the week-end remained calm. President Bush' s trip to Europe this week with to achieve rapprochement with US allies after the rift over war in Iraq is likely to defuse political tensions even further, perhaps lending some strength to the dollar as the visit progresses.
On the economic front, a familiar dichotomy tonight as Japanese data again disappoints while UK news continues to impress. Japanese Convenience Store sales declined -1.7% on year over year basis as both customer spending and customer traffic declined, reflecting the weakened state of Japanese economy. In UK, however, the website Rightmove reported that asking prices on homes rose 2.3% between mid-January and mid-February indicating that UK housing demand remains buoyant supported by low unemployment and rising wages in the UK economy.
As traders return to their desks on Tuesday the anemic results of German GDP (-0.2% expected) are likely to stand in sharp contrast to US GDP rates due Friday which are projected to be revised upward from 3.1% to 3.5%. After last week's implied confirmation from Chairman Greenspan that Fed hikes will continue for the foreseeable future, the market may begin to position long dollars once again as greenback's interest rate differentials against the euro and the yen will become more pronounced. However, unless US takes meaningful steps to correct the twin deficits any dollar bullish moves are likely to be temporary with range trading the most probable scenario for the rest of the quarter.