USD Slumps Ahead of CPI, Bernanke

At 1:00 AM Japan May Leading Index (exp n/f, prev 30.0)
At 4:30 AM UK May ILO Unemployment Rate (exp 5.5%, prev 5.5%)
UK May Claimant Count (exp –8.0k, prev –9.3k)
UK May Avg Earnings 3-mth (exp 3.6%, prev 4.0%)
UK July MPC Meeting Minutes (exp 6-3, prev 4-5)
At 5:00 AM Eurozone May Foreign Trade (exp 2.1 bln euros, prev 1.8 bln euros)
At 7:00 AM Canada June CPI m/m (exp 0.1%, prev 0.4%)
Canada June CPI y/y (exp 2.4%, prev 2.2%)
Canada June core CPI m/m (exp 0.1%, prev 0.3%)
Canada June core CPI y/y (exp 2.6%, prev 2.2%)
At 8:30 AM Canada June Leading Indicator (exp 0.4%, prev 0.5%)
US June CPI m/m (exp 0.1%, prev 0.7%)
US June CPI y/y (exp 2.6%, prev 2.7%)
US June core CPI m/m (exp 0.2%, prev 0.1%)
US June core CPI y/y (exp 2.2%, prev 2.2%)
US June Housing Starts (exp 1.45-mln units, prev 1.474-mln units)
US June Building Permits (exp 1.48-mln units, prev 1.52-mln units)
At 10:00 AM Fed Chairman Bernanke’s Congressional Testimony

The greenback continued to slide in early Asian trading, falling to a fresh all-time low against the euro at 1.3822 and a new 26-year low versus the sterling just shy of the 2.05-level. It’s worth noting that the trade-weighted dollar index is resting on a key support region not seen since 1992 around the 80.40-mark. A breach of this level could open up the floodgates for further losses in the currency, potentially paving the way for a move in the euro toward the 1.40-level.

Market attention will shift to Wednesday’s all-important US inflation data and Fed Chairman Ben Bernanke’s testimony before Congress. The FOMC has maintained its unchanged stance citing that the balance of risks remains skewed toward inflation despite deteriorating fundamentals in the US economy. While there is little doubt the woes in the housing market have remained on the backburner for the Fed, the extent of the downturn has been inconsistent with the jobs market remaining firm and inflationary pressure lingering – thereby keeping its hand in check. We expect the FOMC will ease rates by 25-basis points by December, on a combination of further declines in economic activity and easing of inflation.