USD - The dollar this morning, with the dollar index remaining below the key 80.0 level for a fifth?straight day. While stocks and commodities have begun the week in the red as investors remain skeptical about the health of the US economic recovery, the Fed's plan to buy mortgage?backed securities and far?dated Treasuries is sapping demand for the dollar's relative safety. However, the initial negative impact of QE3 on the dollar may be already be lessening as the ongoing debt crisis in Europe and slow pace of growth elsewhere make the US economy look comparatively attractive. Data released this morning does however suggest that the US manufacturing sector continues to struggle after a subpar summer with Empire Manufacturing unexpectedly dropping to ?10.41 from ?5.85, and far short of the ?2.00 that was expected. On Tuesday, investors will take note of the most recent reading of the current account balance with a modest reduction in the deficit expected. The middle of the week then sees key housing data with housing starts, building permits and existing home sales. Fed Chairman Bernanke singled out the lack of growth in the housing sector as one of the primary "missing ingredients" in the broader economic recovery. Consequently, Wednesday's data will be closely watched, but it remains to be seen whether depressed mortgage rates, thanks to the Fed's new bond?buying scheme, will translate into increased consumer borrowing. To close out the week, the market will look to jobless claims, Philly Fed, and leading indicators all due on Thursday. While the dilutive effects of further quantitative easing will surely keep the dollar towards the bottom of its recent ranges, further depreciation may be unlikely as the US economy continues to outperform its G10 peers.

EUR - The rally in risky Eurozone assets is being tested this morning as continued infighting is threatening to forestall the progress made in lowering regional sovereign bond yields after the last ECB meeting. 10?Yr Italian and Spanish bond yields have risen sharply over the weekend after a clear divide emerged between Germany and Spain/Italy/France at an EU summit this weekend. Ministers gathered to discuss a more unified European banking sector, but purportedly bickered over the terms of "bailout" requests and the ECB's role in buying regional bonds. The uncertainty is offsetting the ECB's recent announcement that it will look to buy Spanish and Italian debt directly and a German court decision that paves the way for the final implementation of the ESM - the region's permanent "bailout" fund. As such, the common currency's is beginning to look a bit overbought against the USD with technical indicators suggesting a pullback could be in store. However, ECB President Mario Draghi is making EUR?bears second guess the currency's strength as it has now appreciated against all 16 of its major counterparts since July 26 when he stated that he would do "whatever it takes" to save the EUR.

GBP - The pound edged higher against both the EUR and USD for a fifth?straight day this morning before a report due on Tuesday is expected to show inflation gaining in the UK. A higher reading of CPI would likely serve to further differentiate BoE policy bias from that of both the Fed and ECB. With British policymakers recently embracing a comparatively hawkish tone, investors will pay particularly close attention to minutes from the Bank's last meeting at which they kept interest rates on hold and their asset purchase program flat at £375B. However, the pound's gains against both of its major counterparts may slow as investors lock in profits after its recent sharp rise.

JPY - The yen begins the week lower against most of its major counterparts as the BoJ kicks off a two?day policy meeting. In light of the recent yen strength and dovish policies from the ECB and Fed, investors are expecting Japanese policymakers to ease further through either an increase in the Bank's own QE program or even through the direct purchase of foreign securities. While risk appetite will certainly provide direction for the yen going forward, the yield differential between Japanese and US/European assets will be the main driver for the yen in the near term.

Commodity Currencies -The commodity linked currencies have pulled back from recent gains this morning as stocks and raw goods slip lower. Oil is flat at $99/bbl, gold fell to $1769/oz, and copper slid to $379/lb. The CAD is slightly lower this morning against the USD after the disappointing manufacturing data out of the US - Canada's primary trading partner. The loonie also lost momentum after a report showed Canadian existing home sales fell by the most in two years. Similarly, the recent rally in the MXN came to an end this morning as post?Fed announcement optimism gave way to renewed fears over the ongoing debt crisis in Europe. Nevertheless, the peso will likely remain well supported below the key 13.00 handle against the USD in the near term with minutes from the central bank's last meeting, due later this week, likely showing that policymakers are considering a hike in interest rates before the end of the year. The AUD is lower as investors suspect the Chinese economy is slowing at a faster pace than previously estimated. Nevertheless, the Aussie will likely remain relatively well supported, albeit within its recent ranges, as global central banks increasingly add it as a reserve currency. Data released this morning by the RBA showed that 23 central banks now hold AUD in their basket of FX reserves.

RMB - The renmenbi firmed as the US's QE3 sunkin and China sees nothing but higher inflation ahead. This will limit their choices for easing, even as the economy continues to weaken. Minister of the Chinese Ministry of Commerce Chan Deming again said the country's foreign trade faces greater challenges for a foreseeable "period of time" into the future as the external environment remains difficult. In addition, the head of MOFCOM Zhong Shan said China "cannot be optimistic" about trade with the EU, China's largest destination for exports, in H2.