Market Turns to FEDs Preferred Inflation Gauge by Patrik Urban

German CPI is still being collected but indications are that it will be as expected. Fundamental releases in NY session include Core PCE price index, personal spending and income and housing data.

USD trading lower against all majors with the exception of CHF. One of the largest moves is seen in USDCAD that has been steadily declining since Asian open. USDCAD currently trades around 9760 which is a few points below the previous range.

German CPI is expected to reach 2.3% on annual basis, slightly lower from previous 2.4%. Month over month CPI is projected to show a decline by -0.1% from previous increase of 0.4%. CPI data is still being collected in several states but the already published results suggest that there will not be any significant surprise. So far, most states have showed annual prints 1.9%-2.4% while monthly numbers show a decline between -0.1% and -0.2%.

Euro is supported by European Commissions comments that there is no need to recapitalize European banks. These remarks come in response to Christine Lagardes speech in which she called for urgent recapitalization of Europes weakest lenders. Lagarde is the managing director of the IMF.

The New York session will bring various data from July. At 8:30 am ET Core PCE price index is due and is expected to increase to 0.2% from previous 0.1%. The annual figure is seen at 1.4% from 1.3%. Given the latest increase in producer and consumer inflation the possibility for a higher print certainly exists. This indicator is Feds preferred measure of the overall price level. A figure on the upside will further add resistance to any QE3, thus maylead to renewed downside in equities.

Personal Spending is expected to rise to 0.5% after dropping to -0.2% in June and Personal Income is projected to increase to 0.3% from 0.1%. Both indicators measure the financial health of American consumers. Given how important consumers are to the US economy, disappointing figures would imply continued deterioration.

At 9:00 am ET J. C. Trichet is scheduled to testify on Eurozones debt crisis before the Economic committee of the European parliament so high volatility is likely.

At 10:00 am ET the National Association of Realtors will release its latest Pending Home sales figures. Sales are expected to decrease by -0.8% from a 2.4% jump in June.