German IFO out shortly as EURUSD falls through initial support. Focus of the week is Wednesday's FOMC announcement.

Key US confidence and housing data also on tap for this week.

MAJOR HEADLINES – PREVIOUS SESSION

• UK Rightmove House Prices fell -1.2% MoM vs. +1.2% in May and rose 0.1% YoY vs. +2.2% in May
• Japan Q2 BSI All Industry Business Conditions survey out at -15.2 vs. -9.3 in Q1
• France Jun. Preliminary PMI Manufacturing out at 49.2 vs. 51.0 expected
• France Jun. Preliminary PMI Services out at 49.2 vs. 50.89 expected
• Germany Jun. Preliminary PMI Manufacturing out at 52.3 vs. 53.2 expected
• Germany Jun. Preliminary PMI Services out at 53.3 vs. 53.1 expected

THEMES TO WATCH – UPCOMING SESSION
Key Risk Events (All times in GMT)
Germany Jun. IFO (0800)

Market Comments

The USD finished last week on a weakish note after failing to hold the highs posted on the previous Friday. To review, the most significant disappointment for the USD was the commentary from the major financial newspapers citing sources close to Bernanke. These sources indicated that the Fed chairman was uncomfortable with the degree to which the market was projecting imminent tightening from the Fed. This makes this Wednesday's FOMC rate announcement and accompanying monetary policy statement the obvious highlight of the week. The policy statement is likely to ratchet up the inflation rhetoric, but keeping Bernanke's indirect communications to the market in mind, it is apparent that growth worries are still so prominent that the Fed will likely indicate that it wants to wait as long as possible before taking any action.

Other US data this week will likely confirm the still moribund state of the housing market, with the CaseShiller Home Price data for April tomorrow, New Home Sales on Wednesday and Existing Home Sales on Thursday. We'll also see the Conference Board Consumer Confidence number tomorrow as well as the weekly ABC Confidence number and the final Michigan Confidence reading for June on Friday. The weekly confidence numbers have eased from their lows recently. One wonders what could be driving confidence higher. It certainly wouldn't appear to be gasoline prices or the employment situation. One reason for an uptick in confidence could be the end of the drawn out Democratic presidential nomination primaries. In fact, there may be a strong psychological effect of the presidential cycle kicking in soon, as the prospect for a change of the nation's leader inevitably has large consequences, especially when the outgoing leader is the least popular president in the history of the country. Looking at the history of the performance of the incumbent party when the economy is weak (we think especially of Jimmy Carter but also George Bush Sr.), it looks like this election is Obama's to lose.

The Euro is losing some steam this morning after the preliminary PMI data for France is registering contracting levels below 50 vs. expectations just above 50. The equivalent German data was still above the 50 mark and largely in line with expectations.  Coming hot on the heels of this data will the important German IFO survey out shortly, which the market reacted strongly to in April and May. It's tough to imagine it coming out stronger than expected. But how much will EURUSD move around ahead of the Wednesday Fed announcement....

The BOE's Sentance is out this morning with negative views on UK growth and saying that it will help offset inflation pressure and saying that CPI hasn't fed into pay demands "noticeably". Is it time to sell GBPUSD again soon?

Canada April Retail Sales released Friday were far stronger than expected, but CAD failed to get much of a boost of this data, one of the reasons probably being that this is one of the tardiest releases of any major economic data release - we already had May Retail data from the US almost two weeks ago, for example. USDCAD seems to be trying to make a stand in the 1.0120 area, which now likely guards the gates for a test of parity.

Again, we think that JPY crosses are mispriced on the inflation hysteria and think that they need to move more in alignment with equity markets - i.e., south. Could Wednesday's FOMC announcement act as an important pivot point for these crosses as well? It feels like this will be an action-packed week.