USD Mired Near Lows

Japan's Market Closed for Holiday

At 2:00 AM Germany June HICP m/m (exp 0.1%, prev 0.2%)
Germany June HICP y/y (exp 2.0%, prev 2.0%)
Germany June CPI m/m (exp 0.1%, prev 0.2%)
Germany June CPI y/y (exp 1.8%, prev 1.9%)
At 5:00 AM Eurozone CPI m/m (exp 0.1%, prev 0.2%)
Eurozone CPI y/y (exp 1.9%, prev 1.9%)
Eurozone CPI ex-F&E m/m (exp 0.1%, prev 0.2%)
Eurozone CPI ex-F&E y/y (exp 1.9%, prev 1.9%)
At 8:30 AM US July NY Fed Manufacturing Survey (exp 18.0, prev 25.75)
Canada May Manufacturing Shipments (exp 0.5%, prev -0.6%)

The dollar continued to struggle in a holiday-thinned Asian session, remaining mired near all-time lows against the euro shy of the 1.38-mark and 26-year lows versus the sterling. Lingering uncertainties stemming from the subprime mortgage market and potential spillover to the overall economy are the catalyst for the latest sell-off in the greenback. Although the FOMC has offered little hints of a possible shift to an easing stance, traders' anticipation for a rate cut either later this year or in early 2008 has compounded the dollar's woes.

Several key US economic reports slated for release this week, including inflation reports, TICS, industrial production, capacity utilization, housing starts, building permits, leading indicators and the Philadelphia Fed manufacturing survey. The June CPI report is seen largely unchanged from its previous readings, suggesting the FOMC will continue to focus on inflation. The main event this week however, will be Fed Chairman Bernanke's Congressional testimony on Wednesday. We anticipate Bernanke to maintain that inflationary pressures on the economy continue to be the Fed's primary concern, albeit acknowledging further slowdown in growth.

Euro Holds Steady Near All-Time Highs

The euro maintains its strength near record highs against the dollar and yen heading into the week. In the coming session, traders will digest inflation data from Germany and the Eurozone. Germany's CPI is forecasted to hold steady at 0.1% versus 0.2% from a month prior and 1.8% from 1.9% in the previous year. Meanwhile, the Eurozone CPI is also largely unchanged around 1.9% annually and 0.1% monthly.

EURUSD hovers just beneath the 1.38-level, with traders intent on pushing the pair towards near record highs. Resistance begins at 1.38, followed by 1.3850 and 1.3880. Subsequent ceilings are seen at 1.39, backed by 1.3940 and 1.40. On the downside, support begins at 1.3740, followed by 1.37 and 1.3650. Additional floors will emerge at 1.3630, backed by 1.36 and 1.3550.

Sterling Remains Buoyed

Cable continues to hold steady near its highest levels in 26-years above the 2.03-level. The coming week will likely push the pair to higher, with slate of UK economic reports due out. The key focus will be CPI data, which will show inflation in the UK remains above the 2% target, at 2.4% -- likely prompting the BoE to continue tightening this year. Traders will also closely scrutinize the MPC's July meeting minutes for confirmation of additional rate hikes. Also due out will be the UK's May labor report, with the unemployment rate expected to hold steady at 5.5%.

MG Financial Group