USD - In what appears to be a recurring phenomenon, the greenback was once again tossed to-and-fro by the winds of economic news and risk sentiment throughout last week and this morning. A barrage of key data releases last week had market participants frantically searching for direction and a firm footing for the dollar. The opening of the week ushered-in sanguine news lending credence to the notion of a gradual, yet steady recovery, while the latter half brought with it ominous signs that suggest a potential fragility in the much-hoped-about economic rebound. ISM Manufacturing and Prices Paid showed an impressive mprovement m/m (55.7 and 65.0 in Oct., respectively), while Factory Orders surged (+0.9% in Sep. vs. -0.8% prior). The FOMC rate announcement last Wednesday, while coming in as expected (no change to Fed Funds range of 0% to 0.25%), cast a shadow of doubt upon the nascent US economic optimism, as the Fed confirmed interest rates would remain at exceptionally low levels for an extended length of time. Fed Funds Futures were showing a 53% chance of a 25-bps rate hike in June 2010 last Thursday. The ensuing data releases, as if taking their cue from the dovish Fed rhetoric, proved disappointing, ultimately stoking the flames of market risk aversion. US NFP printed worse-than-expected (-190K in Oct. vs. -175K exp.); furthermore, the headline unemployment rate surged up to 10.2% (9.8% prior)-the worst level since 1983. With a light economic calendar this week, and thin trading conditions expected with the US Veteran's Day holiday mid-week, the currency market is likely to take its cue from the equity markets. The DJIA is back above the psychologically and technically significant 10,000-level, which suggests that risk appetite is back in-vogue-a negative development for the USD.

EUR - The euro rose above $1.50 boosted by several economic reports that point towards continuing economic recovery in the Eurozone. Germany, Europe's largest economy, reported Industrial Production surged 2.7% in September and 3.5% in Q3'09, marking the largest quarterly increase since unification in 1990. Investor sentiment also rose to its highest levels in 17 months to -7.0 in October from -12.6 previously. The positive news follows last week's Purchasing Manager's Index (53 in Oct.) in a further sign that the Region is emerging from its difficult recession.

GBP - The BoE most likely fired the last bullet last week when it increased its asset purchase program by GBP25B to GBP200B. It was slightly less than the GBP50B expected by consensus. BoE notes that GDP continued to fall in Q3 but that a number of indicators of spending and confidence suggest that a pickup in economic activity may soon be evident. PMI for both manufacturing and service rose
further reaching levels pointing to above trend growth rates. Industrial production also rebounded 1.6% m/m in September. Furthermore, October saw a decent rise in car sales leading to an annual increase of 31.6%. The strong data and a less dovish BoE also gave support to the GBP, which this morning rose to its highest level in three months against the USD.

JPY - The yen declined vs. most major currencies as investors were drawn to higher-yielding assets, following the G-20 meeting where the nations agreed to maintain their economic stimulus measures. The yen continues to be one of the primary currencies used to fund the carry trade as the BoJ maintained benchmark interest rates set at 0.1% last week. In August, Japan exceeded China as the biggest foreign buyer of US Treasuries, increasing its holdings to $731B. The boost came from Japanese investors who lived through the lost decade in Japan, saying that US Treasuries are a bargain even with yields at the lowest levels since at least the 1960s. The yen will continue to trade on safe-haven flows and
investor risk appetite.

CAD - News that the G20 nations agreed to keep economic stimulus measures boosted the CAD as stocks and commodities gained. The Canadian unit was also boosted by better-than-expected housing starts data, which jumped to the highest this year in October. Last week, Statistics Canada reported permits for housing construction surged to a one-year high in September to 1.6% as expected. Despite improvement in the housing sector, the job market is still fragile. Last Friday, Canada's economy lost 43,200 jobs in October vs. expectation of 10,000 job increase, which boosted the unemployment rate up to 8.6%. A fragile labor market added to expectation the BoC will keep interest rates low for a long time.

MXN - Mexico's currency traded within well-worn ranges last week and this morning despite encouraging news from the World Bank that the Mexican economy is forecasted to grow 3.1% in 2010 after a projected decline of 6.8% in 2009. Nascent signs of a stabilization of the precipitous fall in economic output from earlier in the year were evidenced by an uptick in CPI (0.3% in Oct. vs. 0.43% exp.) and 4.5% y/y. Furthermore, with the MXN nearly 20% stronger currently than its lowpoint of 15.5892 hit on 3/9/09, IMF Director Eyzaguirre expressed that the Mexican economy should be bolstered by the strength of the peso.

CNY - The yuan is mostly unchanged vs. the dollar at 6.8272. Comments from a central bank official that China was not under a lot of pressure to strengthen the yuan led many to conclude that the
currency will remain stable in the near term. Markets are forecasting the yuan to rise 3.44% in the next 12-months.