CPI Data Crucial for Dollars Direction.

[B][U]by Lena Manousaridi[/U][/B]

After what seemed like a �stormy day� in all currency pairs, we saw some calm in the pairs, with EUR/USD trading within tight ranges ahead of the very important CPI data. The European trading session started very aggressively yesterday, with yen gaining against the other currencies and dollar the clear winner of the day. The risk aversion which we saw yesterday was related to comments from officials regarding concerns over strong euro and yen weakness. Lets not forget that with G7 only a few days away, there is a lot of uncertainty over the outcome of the meeting and how it will affect the currencies.

Yesterdays data was once again disappointing for the American economy, as we saw negative TICS data for the first time in many years. That was a bit worrying where the markets forecast for the number was 60B, yet the outcome was negative, which means that foreign investors withdrew money from US investments for the month of August. This together with negative NAHB housing index and mixed industrial p[production, left the market uninterested, with dollar not getting its usual sell off but instead even gaining against the euro. That fact only show that traders are in a wait and see mode ahead of key inflation data and they don�t want to pre commit in any dollar sell off before the actual release.

Today, we have CPI and Housing starts from the US and also the Feds Beige Book later on. The inflation data will be monitored closely by the markets as any sign of higher inflation will give speculations signs that maybe Bernanke will not rush to cut the rates once again, but leave rates the same with the scope to hike again later. Also, the housing data release might have effect on dollar as more disappointing data might be welcomed by dollar bears and give EUR/USD a push back above 1.42.

However, lets wait for the data to come, and even after the release we might see choppy trading and the �big players� getting ready for a bigger move like last week. It is wise to wait for the clear market reaction as days like these, often show fake moves happening.

EUR/USD and GBP/USD are trading within tight ranges over the last few hours and it seems like �something is cooking� for the US open and the data release. A clear break to the downside of 1.4145 might spark more euro weakness and the pair might end up at 1.41 and bit lower. However, yesterday that level of 1.4145 kept very nicely and the pair found support and more buyers which took the currency up near 1, 42. On the upside, any clear break of 1.4245 will have to be seen before we can say that the life time highs of 1.4285 will be tried once again.

Stay focused on the news and also be aware of any more comments by the �usual suspects� which might once again tell us how worrying the levels of euro, dollar, or the yen are. There are many speculations regarding some kind of intervention this weekend, however lets have in mind that if that does NOT happen, then the market will react accordingly and therefore we might see risk appetite return and euro gaining more against the dollar�