USD remains handcuffed in a range with another relatively quiet economic calendar week ahead.

RBNZ to cut rates this week for the first time in five years? GBP a bit weaker on Blanchflower comments - GBPUSD trading below key support.

MAJOR HEADLINES – PREVIOUS SESSION

• UK Jul. Rightmove House Prices fell -1.8% MoM vs. -1.2% in Jun.
• Australia Q2 Producer Prices rose 1.0% QoQ vs. 1.6% expected

THEMES TO WATCH – UPCOMING SESSION
Key Risk Events (All times in GMT)

• Switzerland Jun. Producer and Import Prices (0715)
• US Jun. Leading Indicators (1400)

Market Comments

Most key FX crosses finished last week quietly, as the better than expected Citigroup earnings report seemed to show that the market was tiring a bit of reacting to the US banking stock developments and volatility was hardly anywhere to be found. The carry trades did manage to respond with another rally on Friday that saw the week closing on a high note and even lasted into the beginning of this week for the likes of AUDJPY as Asian equities blasted higher. Our basic assumption is that the sharp stock market rally that unfolded last week is a chunky short-covering rally driven by signs of stability (or "lack of implosion" might be a better way to put it) in the financial sector for the time being. But there is also something called the "real economy", which is globally showing signs of further deceleration, most recently in the EuroZone and Australia, but also incipient signs of deceleration in China are cropping up. This last development is very important for the global growth picture, and the recent removal of some energy subsidies could further slow China's breakneck growth rates.

The key going forward may be how the USD responds once the shorter term optimism fades - the recent meltdown in confidence seemed to hurt the USD, after all, while the return of a risk appetite did nothing to come to its aid - so we seem to be stuck in limbo for now until we see a better catalyst. One potential source could be moves in the major commodity indices. The recent sharp sell-off in crude oil should be having more of an effect than we have seen thus far and ought to eventually come to the aid of the USD if it deepens. Also, how can AUD remain resilient in the face of a commodity sell-off? It seems that AUD may need a perfect "hat-trick" of risk aversion (bond market rally, equity sell-off and commodity sell-off) to lose its mojo. The inverse is thus true of the JPY and CHF, it appears. The strong AUD is beginning to stick out like a sore thumb as the market is likely ignoring the weakening domestic fundamentals at its peril.

For now, the broad USD action is utterly without momentum as EURUSD has spent 99% of it's time in a 90-pip range since lunchtime last Wednesday. So a close south of 1.5800 or north of 1.5900 is needed to create even a spark of interest in the pair for the short term. GBPUSD is struggling below the 200-moving average again this morning after the poor Rightmove house price data and very dovish comments from the BOE's dove, Blanchflower, who said that rates have been too high for too long and that the UK is heading for a recession. USDJPY is also up having a look at the key 200-day moving average resistance. This week doesn't offer up much in the way of economic data with Existing and New Home Sales on Thursday and Friday, respectively, and Durable Goods Orders and the final Michigan Confidence reading on Friday.

Plenty of focus on NZD this week, however, as the market is about evenly divided on whether the RBNZ will cut rates by 25 bps at its meeting Thursday (Wednesday evening for those of us in Europe). NZD is certainly looking vulnerable again, and NZDUSD found resistance right up against its 200-day moving average last week.