USD under pressure, PCE index and housing data next

After a significant USD weakening seen during the Asian session, the
greenback was able to recover a portion of its losses. Even though the
USD trades off its lows, it stays under pressure.

GBP was boosted when monthly UK Nationwide house prices increased
significantly from -0.2% to +0.3%. Market is still waiting for
preliminary reading of German monthly CPI figures. Analysts predict a
slight decrease from 0.2% to 0.1%.

Beginning of Friday’s US session will shed light on the health of the
US consumer. Personal Spending is expected to decrease from 0.6% to
0.5% and Personal Income is anticipated to worsen from 0.5% to 0.4%.
Because consumer spending accounts for majority of economic activity
in the US, any deterioration would signify weakness in future data
releases.

Fed’s preferred inflation gauge, the Core PCE Price Index will also be
released at 8:30 am EDT. Market expects an increase from 0.1% to 0.2%.
Today, this release will be even more important than usual as higher
print could reduce the rumors about QE3 that started to circulate
after disappointing GDP figures. So far, the Fed has been clear that
QE3 is not likely to happen. Continued reinvestment of maturing bonds
is, however, one of the options that Fed has.

At 10:00 am EDT the National Association of Realtors will release its
monthly Pending Home Sales figures. Market expects significant
worsening from previous 5.1% to -0.9%. Given the ripple effect that a
sale of a home has on the economy, such a large drop would also
indicate weakness in data releases to come.

Over the past few weeks economic data from the US mostly disappointed.
The economy seems to be deteriorating again so in absence of EZ
problems the greenback would depreciate. Should EZ find a real,
credible solution to its issues, markets would calm, risk appetite
would return and USD would drop.

Patrik Urban