U.S. New home sales remain strong in the US, figures show, suggesting that successive interest rate rises have yet to subdue the property market.

Experts believe the impact of months of consecutive rate rises will soon affect the market, with some even forecasting a double-digit fall in sales of new homes this year. The Federal Reserve is expected to raise rates to 5.25% on Thursday.

Effect: If Feds are going to rise rates then, it might hurt the U.S. Economy this time. Usually currency trned to be strong while central banks rise rates but too much pressure on economy is bad for the long run as well.

Oil production in Iraq has hit its highest level since former leader Saddam Hussein was ousted in 2003. Production has risen to 2.5 million barrels per day (bpd) from a steady 2 million bpd during the US-led invasion, Iraq’s new oil minister said.Hussain al-Shahristani added that production was expected to rise to 2.7 million bpd by the end of the year.

“We have been able to break records,” he said of the government, which has been in place for just over a month.

Effect: US CPI will fall due to falling Oil price if the Iraqi supply keep increasing. Which is a good sign as this news says

The ultra discounter said steep gasoline prices prompted customers to make fewer shopping trips, but they stocked up while there, spending nearly 5 percent more per trip. Family Dollar caters to lower-income shoppers who are most sensitive to rising energy costs.

Effect: If the oil keep falling consumer will have more cash on hand to spend which means consumer confidence index will go up and thats a dollar positive sign. I’m going to look south on X/USD pairs such as EUR/USD and AUD/USD this week.

The Bank of England’s interest rate-setting body voted 7-1 in favour of keeping rates at 4.5% in June, minutes show. The Bank of England’s rate-setting body voted 7-1 to hold UK interest rates at 4.5% in June, minutes have shown. The one member of the Bank’s Monetary Policy Committee (MPC) to vote against the freeze was David Walton, who favoured raising rates to 4.75%. It was the second month in a row that Mr Walton had voted for a rise, because of worries over the risk of inflation.

Analysts said the minutes appeared to rule out the chance of a rise in UK rates during the short term.

Effect: I’m hoping that GBP/X pairs will go south as well, mostly against Yen, GBP/JPY might hit 209 this week as

Japanese stocks fell on speculation interest rates will keep climbing in the U.S. as the Federal Reserve attempts to quell inflation, curbing spending in Japan’s largest overseas market.

And this news just hit the stores,

China’s economy will expand faster this year than in 2005 as investment and exports continue to grow, the central bank’s research bureau said. Gross domestic product will probably rise 10.3 percent in the first six months before slowing in the second half for full-year growth of 10 percent, the People’s Bank of China said in a report, published today in the state-owned China Securities Journal. China’s economy grew 9.9 percent in 2005, overtaking the U.K. as the world’s fourth largest.

This will be a fixed week, I’ll be very sensetive to technical indicators as there is no certain trend on dollar unless Feds rise rates. Good luck and happy trading.

policy makers need to adjust interest rates from near zero percent “without delay.”

 Inflation-adjusted interest rates are extremely low and could risk stimulating growth excessively, Fukui said today in a speech at the Japan National Press Club in Tokyo. The yen later pared its advance after Fukui said he hadn’t intended to give a specific timeframe for lifting borrowing costs.

Yen, there was not much major rally of Yen against majors due to the fact that Bank of Japan has been “rising” interest from near zero for last few months now and so far their money wasn’t seen where there mouth were.

It was the last taste of scheduled economic data the Canadian dollar would get this week and the subdued response to the day’s indicators left little hint as to direction in the unit for the remainder of the week.  Across the Canadian dollar denominated pairs, movement either for or against the currency was absent.  Against the benchmark US dollar, the loonie was quoted a mere 10 pips from the previous New York session’s close at 1.1125 at 17:00 GMT.  The defining characteristic of the session’s USDCAD price action was a rally that petered out at 1.1175, the high set on June 6th.  After the turn, an 80-pip decline on general greenback bearishness effectively put the pair out of step of any potential trend that could have ensued.

Indicators of Canadian manufacturing shipments, existing home sales and new vehicles sales were the soup de jour for market participants starved for economic data with which to value the loonie.  The best indicator amongst the three was the report on May existing house sales.  Sales surged 2.4% last month as consumer confidence was buoyed by a record low unemployment rate and bloating wages.  In addition to the better sales figure, a component measuring the average price of existing homes breached the C$300,000 mark for the first time on record, suggesting the housing sector will contribute to economic growth should the manufacturing industry cool.  The better of the remaining two indicators was April vehicle sales, which fell 0.7% for the month.  The disappointing nature of this decline was tempered somewhat however given expectations of a 1.0% decline for April and a downwardly revised 0.4% rise in the month before.  Auto sales suffered in April as gasoline prices approached record highs and higher interest rates made a car purchase an expensive venture.  The deciding factor for traders still positive the loonie was the poor showing in the manufacturing shipments for April.  Factory shipments abroad dropped a greater than expected 1.5% as the nations currency appreciated 12% on the year, making Canadian goods more expensive than global substitutes.  An expensive exchange rate is slowly starting show its effects in sections of the export dependant Canadian economy.  Manufacturing capacity dropped in the first three months of the year, while new orders fell 2.3%.  Additionally helping to mediate loonie volatility was the halt in yesterday’s commodity declines.  Gold, crude, copper and other Canadian exports made modest recoveries from Tuesday session lows.

Canada’s main equity index rose for the first time in eight days as the recovery in commodities floated material producer shares with it.  The S&P/TSX Composite Index was 0.63% or 69.05 points higher at 10,973.39 by 16:55 GMT.  Energy producers made the biggest contribution to advances on the session.  The worlds largest gold miner, Barrick Gold, saw shares advanced C$0.39 to C$30.34, while shares of the country’s number two, Goldcorp Inc., rose C$0.76 to C$28.36.  In the energy field, EnCana tacked on C$0.79 to C$52.10 share value.  Restraining a bigger rally was the drop in the financial sector, which fell after fears of higher US interest rates was stocked by the day’s inflation gauge.  Canadian insurer, Manulife Financial, dropped C$0.79 to C$34.67.

Canadian government debt was lower by the afternoon after the days strong housing sales read suggested consumer spending is still pushing the inflation gauges. The 10-year debt paper was 0.35% higher at 101.08 while yields added 5 basis points to 4.35.

Though a positive read for dollar traders, today’s long anticipated consumer price gauge came and went with little of the rally expected with the improved odds of an additional rate hike at the June 28th Federal Open Market Committee meeting.  Price action in the majors was predominately driven by the US dollar given the similar swings across all four.   In the benchmark EURUSD pair, a steady rise was produced through much of the Asian session, which was exhausted around 1.2605 at 8:45 GMT and subsequently completely retraced leading up to the scheduled economic releases due at the open of North American markets.  The real trading opportunities were expected around 12:30 GMT in accordance to the CPI data, where the bulk of the session’s volatility was expected.  In the aftermath of the releases, only modest action was seen before the EURUSD hit the session low around 1.2530 before the crosses made significant rallies.  Similar rallies were seen across all the majors, while the euro-backed pair specifically made a 120 pip run.

In fundamental terms, the consumer inflation data was what dollar bulls were banking on.  The annualized headline read accelerated to 4.2% in May, far outpacing the 3.5% consensus among analysts.  Within the broadest read, the largest contributor to the faster pace of inflation was a 2.4% spike in the energy product component, chiefly the result of gasoline bills.  The more telling read however was in the yearly core figure, which bested expectations of a repeat 2.3% rise, by printing a 2.4% number, the fastest rate in more than four years.  Breaking down the core components, a monthly 0.4% rise in service-based goods and largest increase in rents since 1990 were specifically dear for consumers in May.  Over the first five month’s of the year, consumer prices have grown at an annual 3.1% clip compared to 2.4% for the same period only a year ago.  The disparity in the headline figure was even greater as the first five months of 2006 have produced an annual 5.2% jump versus 3.6% last year – a good visual for the effects of recent energy prices.  Inflation fears have been especially aggravated in May by a stall in earning potential in the US.  Consumers were hit last month when the economy only added 75,000 jobs and weekly wages plummeted 0.7% when adjusted for inflation. Fed Chief Bernanke now has the data necessary to fully necessitate a rate hike at the end of this month.  Fed fund futures have fully priced in a 25 basis point hike from the coming meeting, up from 86% yesterday.  Tomorrow’s docket will keep the ball rolling with releases of the TICS, Empire Manufacturing survey, Philly Fed survey and industrial production.

US equities rebounded from seven-month lows by mid-day Wednesday as sector upgrades and star performers buoyed indices above concerns of higher lending rates.  The Dow Index led the way with a 0.7% advance to 10,782.47, while the NASDAQ Composite trailed with a 0.6% rise to 2,084.60 and the S&P 500 with its own 0.3% gain to 1,227.97 by 16:20 GMT.  Coaching the Dow index higher, shares of commercial aircraft maker Boeing forged head $3.91to $80.89 per share after the blue chip announced it received a 20 plane order from Singapore Airlines.   Leading the tech heavy NASDAQ into the green was a strong performance by Intel.  The world’s largest computer chip maker received a boosted in analyst recommendations that sent shares $0.64 higher to $17.76.  Following suit, Intel rival Advanced Micro Devices Inc. also received an upgrade boosting shares $0.99 to $25.38.

Government paper plummeted in debt trading as traders now fully expect a firming monetary policy in the coming weeks.  The 10-year note fell 22/32nds to pay 100 18/32 of face value with yields up 9 basis points to 5.05.  A larger decline on the longer 30-year contract dropped 1 1/32nds to 91 1/32 of face with yields 7 basis points higher to 5.09.

Talking Points                                             

·          AUD Consumer Confidence slips markedly

·          EUR Inflation considerably above 2.0% ECB target

·          UK Labor data lackluster

·          US CPI on deck

The EUR/USD made a stab at a recovery in early European trade today after seven straight days of declines when both French and Italian CPI data printed considerably above the 2.0% target set by the ECB. The French data registered a 2.4% year over year increase while Italians reported  a gain of 2.3%. The news was strong enough to temporarily send the pair above the 1.2600 figure but it has since retreated from that level. Overall the data clearly indicates that inflationary pressures continue to percolate throughout the region and will likely elicit another 25 basis point rise from the ECB within the next several months.

Today, however, attention will turn to the other side of the Atlantic as US CPI figures are scheduled for release at 12:30 GMT. The market anticipates a 2.3% year on year gain ex food and energy.  Should the numbers print a but softer market expectations regarding a 25 basis point Fed rate hike in June may recede a bit, but  given the fact that most FOMC members have stated that the PCE is their preferred measure of inflation and considering that most recent Fedspeak has been decidedly hawkish the chances of a hike to 5.25% remain strong unless today’s results provide a major surprise to the downside. Of more interest however, is the speculation in the market regarding what happens after the June meeting.  Many traders believe that this may be the last Fed hike for the year as the risks of tipping the economy into a recession may outweigh the need to control inflationary pressures. One positive factor for inflation doves is the price of crude which has traded below the $70/bbl handle for several days in a row. Should it continue to trade lower it would alleviate the primary inflationary concerns of most of the hawks on the FOMC.

Meanwhile across the Pacific, the drama swirling around Governor Fukui (prior to becoming the BoJ chief, Mr. Fukui invested funds with a  money manager accused of insider trading) threatens to become a sideshow that may temporarily weigh on the yen. Although Mr. Fukui is cleared of any foreknowledge of the crime, questions have arisen regarding the timing of the liquidation of his investment. In culture where even the appearance of impropriety is viewed with scorn, some market players feel that Mr. Fukui’s personal troubles may prevent him from  acting freely on the issue of ZIRP. However, should the whole matter turn our to be a tempest in teapot the move in USD/JPY above the 115.00 level could turn out to be short lived as Japanese fundamentals continue to point to a lift of ZIRP.