FOREX: Tuesday's review

The euro weakened against most major counterparts on speculation the European Central Bank has finished raising interest rates as the region’s sovereign-debt crisis curbs economic growth.
The yen rose versus 12 of its 16 major peers as U.S. consumer confidence dropped to the lowest since April 2009 and home prices fell, adding to demand for safer assets. The euro snapped a two-day gain versus the dollar after ECB President Jean-Claude Trichet said yesterday the bank is reviewing its assessment of inflation risks, and data today showed confidence in the region’s economy plunged. The ECB meets next week.
“There’s signs that the ongoing financial-market troubles are starting to have a more noticeable impact not only on confidence but on actual economic activity,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “The challenges for the euro are accumulating, and this is a reason the euro is down today.”
U.S. stocks fell as the Conference Board’s index slumped to 44.5 this month, from a revised 59.2 reading in July, figures from the New York-based private research group showed. It was the biggest point drop since October 2008. Economists predicted the August gauge would fall to 52. The Standard & Poor’s 500 Index dropped 0.6 percent.
The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent in June from a year earlier, after dropping 4.6 percent in the 12 months ended in May, the group said today in New York. The median forecast was for a 4.6 percent drop.
“We’re going to see a lot of the risk-off trades come back into the picture during the rest of the week,” said Robert Sinche, global head of currency strategy at Royal Bank of Scotland Plc in Stamford, Connecticut. “We continue to see euro- dollar move with equity prices and risk in general.”
A Credit Suisse AG index shows traders are betting the ECB will cut its key rate by 20 basis points, or 0.2 percentage point, in the next 12 months. A month ago, they wagered it would raise rates by 22 basis points.
The euro extended losses after the European Commission in Brussels said an index of executive and consumer sentiment in the single-currency region fell to 98.3 in August from a revised 103 in July. That’s the lowest since May 2010 and below the 100.2 reading predicted.
Aug 9 FOMC minutes:
"Uncertainty surrounding the outlook" rose appreciably and recognized "increase in the downside risks" to growth. FOMC discussed "range of policy tools available to promote a stronger econ recovery" incl forward guidance, more asset buys, increase avg mat'y of holdings, reduce IOER. Some said no tools would likely do much and would risk boosting inflation. Agreed on 2 days for Sept FOMC to discuss. Most thought mon-pol "could contribute importantly to better outcomes"; some saw add'l accommodation needed because unemployment rate is high. Forward guidance seen as "measured response" but a few wanted a more substantial move and accepted the stronger guidance as step in that direction. "Three members dissented because they preferred to retain the forward guidance language employed in the June statement." Rejected conditioning FF rate on explicit numerical values for unemployment or inflation, with arguments on both sides. Most said conditional FF expectation thru mid-2013 provided useful guidance; some noted this did not remove flexibility to adjust later.

European data for Wednesday starts at 0600GMT with German retail sales and also the ILO measure of unemployment. This is followed at 0755GMT by the main German unemployment data, which is expected to show a -9k change and rate at 7.0%. European data continues at 0900GMT with the EMU unemployment rate, which is expected to remain at 9.9% and also flash HICP data for August, which is expected to come in at 2.5% y/y. Also in Europe today, from 0730GMT, the German government meets to approve measures decided at a eurozone summit in July with the following press conference due to take place in Berlin at 1130GMT US data starts at 1100GMT with the weekly MBA Mortgage Application Index, which is followed at 1130GMT by Challenger Layoffs and at 1215GMT by the ADP National Employment Report before the 1230GMT release of the latest ISM-NY Business Index. At 1345GMT, the Chicago PMI
is expected to fall to a reading of 53.0 in August after falling in July. Other regional data already released have suggested significant contraction. This is followed at 1400GMT by Factory Orders and also the latest Help-wanted Online index. Factory new orders are forecast to rise 2.0% in July. Durables orders were already reported up 4.0% in the month on a spike in aircraft orders.
Weekly EIA Crude Oil Stocks data is due at 1430GMT. Then, at 1530GMT, Atlanta Fed President Dennis Lockhart is due to deliver a speech on the economy to the Greater Lafayette Chamber of Commerce. Late US data includes the 1900GMT release of Agriculture Prices for August.