USD - The USD recouped some of its losses from late last week as concerns over the European debt crisis and the slowdown in global growth partially offset expectations of further Fed easing. Nevertheless, the dollar remains towards the bottom of its recent ranges after last week's disappointing NFP report led investors to up their bets that the Fed will unveil a third round of quantitative easing. However, QE3 would likely need to be structured differently than the Fed's first two rounds of asset purchases as a fixed dollar amount and hard end?date likely would have a limited impact on lending at the consumer level. Consequently, investors are beginning to price in a possible open?ended bond buying scheme with monthly stimulus levels adjusting to and encouraging sustained improvement in the economy. While this may support the struggling jobs market, it will likely weigh heavily on the dollar. However, Fed action is far from a foregone conclusion at this point, with the looming Presidential election in November and with economic data outside of the labor market generally improving. As St. Louis Fed President James Bullard stated early last week, policymakers may want to see more economic data before taking action. Notably, CPI data is due on Friday, a day after the Fed's decision, and it is expected to push higher to 1.7% on an annualized basis. The market will also take note of trade balance figures due tomorrow and the import price index on Wednesday. Producer prices are out on Thursday as are weekly jobless claims ahead of the FOMC decision. Friday also sees the release of retail sales, industrial production, and U. of Michigan confidence. The dollar will thus likely remain towards the bottom of its recent ranges in the run up to the Fed's Thursday meeting.

EUR - The EUR is lower for the first time in nearly a week as Greece's financial woes are again in the spotlight. Negotiations amongst Greece's new governing coalition to find another €11.5B in savings fell apart over the weekend, thus undermining any expected progress at two key meetings this week between Greece's leaders and their international creditors. However, the breakdown may be of little significance as the socalled Troika (ECB/EU/IMF) has yet again
postponed a final report on easing lending borrowing conditions for Greece until late November in consideration of the upcoming US election. While Greece may have enough liquidity to "muddle through" till then, as German Chancellor Merkel put it, further political failures could make Greek finances a more immediate
cause for concern. Meanwhile, the bond?buying plan that the ECB announced last week is facing opposition from conservative German politicians. Investors are fearful that the new charge could delay a final decision from the German constitutional court on the ESM/fiscal treaty, expected later this week. As such, yields on Italian and Spanish debt are again on the rise, reversing steady declines after last week's ECB announcement. The uncertainties will likely keep the EUR's recent gains at bay with the EUR/USD's 200 SMA providing clear resistance in the mid 1.28's.

GBP - Sterling remains above the key 1.60 handle this morning against the USD as investors remain fairly optimistic that British policymakers are taking the necessary steps to backstop the British economy. With the BoE's policies appearing rather hawkish as compared with those of the ECB and the Fed, the pound's recent gains may be nearing an end, as economic growth concerns remain. For the week ahead, investors will take note of the British trade balance on Wednesday and jobless claims and unemployment on Friday.

JPY - The yen consolidated over the weekend towards the higher end of its recent ranges as risk aversion continues to provide support. Japanese data fell short of expectations over the weekend with Q2 GDP falling to 0.7% from an estimate of 1.4% in the previous reading, and short of the 1.0% that was expected. While the economy is still growing on an annualized basis, it's merely inching along at a 0.2% pace. Policymakers have blamed the persistently high yen as a break lower could prompt further bouts of central bank intervention. However, with the global economy showing signs of slowing, the yen will likely remain well supported in the near?term even with a possible dip lower due to BoJ selling.

Commodity Currencies -The commodity currencies are mostly lower this morning, other than the CAD, with stocks and commodities gyrating between gains and losses. Oil and gold are lower at $96/bbl and $1731/oz respectively while copper edged higher to $369/lb. The CAD has been one of the better performing currencies today as investors are increasingly attracted to the BoC's relative hawkishness amongst its G10 peers. Rising expectations of further Fed stimulus is also providing support with the majority of Canadian exports headed into the US. Meanwhile, the AUD retreated after Australian home loans declined by 1.0% reversing the previous month's gain. The Aussie is also lower after data out of China - Australia's main trading partner - showed that industrial output rose by the least in three years and imports unexpectedly fell. With little major data due from either economy this week, the overall direction of the CAD and AUD will likely track risk sentiment and expectations of further central bank stimulus.

RMB - The renminbi extended its recent gains this morning despite a bout of negative data out of China. The PBoC set the yuan's fixing rate at a two?week high of 6.3375 vs. the dollar before data showed that Chinese imports fell to the slowest pace in nearly three years. Chinese exports gained by less than expected, up 2.7% from the previous month's 1.0% gain, but short of the 2.9% that was anticipated. Nevertheless, further strengthening is to be expected with growing expectations of Fed stimulus providing support.