USD - The USD begins the week at the top of its recent ranges, supported by renewed fears that Greece may be close to exiting the Eurozone. Last week, the dollar traded in a rather narrow range, but ended the week below key technical support levels against most of its G10 peers on the resurgent flight to safety. Stocks and commodities are deep in the red this morning as investors expect that further political drama out of Europe could weigh on the outlook for the broader global economy. Nevertheless, the dollar's upside remains limited as easing price pressures and increasingly dovish rhetoric from the Fed suggests that policymakers will likely have room to ease monetary policy further in the coming months to protect the US economy from slowing considerably. Prospects of a third round of quantitative easing will certainly slow gains, but in the current risk?off environment, the dollar's upside will likely win out in the near term. Investors will pay particularly close attention to tomorrow's CPI report after last week's lowerthan? expected reading of both import and producer prices. The market will also take note of Empire manufacturing and retail sales on Tuesday. Wednesday sees the release of housing starts, building permits, and industrial production, while Thursday brings weekly jobless claims, Philly Fed, and leading indicators.

EUR - The EUR dropped to its lowest levels in more than four months this morning on increased fears of Greece's imminent collapse and as German Chancellor Merkel's party lost a key election in the nation's most populous state. Greece still remains without a government, with voters likely headed back to the polls next month. Rumors are that Greek policymakers have considered all possible courses of action, including an exit from the Eurozone. While Greece cannot be forced out of the currency bloc per the Lisbon Treaty, as German Finance Minister Schauble put it, conditions can be made so uncomfortable for the nation that an exit from the EUR is the only sensible option. Meanwhile, the Social Democratic Party won elections in the German state of North Rhine?Westphalia by the widest margin since WWII. The results may cause further divide amongst German policymakers as left?wing political factions align with French resident?elect Francois Hollande's anti?austerity stance, advocating policies that encourage economic growth rather than lower government spending. However, while more pro?growth than the Christian Democratic Party, North Rhine?Westphalia was the first German state Merkel lost in 2010 as voters opposed bailing out Greece, but the SDP's ability to parlay this weekend's victory into a win in next year's federal election seems unlikely at this point.

GBP - Sterling was one of the top performing currencies overnight, paring some of its losses from late last week as investors turn to the relative safety of British assets. The yield on 10?Yr Gilts fell to a record low as the ongoing tensions in Greece and signs of political division within Germany support the risk?off trade. The pound strengthened past the key 0.80 handle against the EUR for the first time since 2008 as investors are attracted to its relative stability and the BoE's comparatively hawkish stance versus that of the SNB, BoJ and Fed. While light on the releases, the week ahead holds key pieces of economic data, with investors taking note of British jobless claims on Tuesday and CPI, retail sales and RPI on Thursday.

JPY - The yen fell back below the key 80.0 barrier against the USD as investors flocked to its relative safety. While Japanese economic growth remains anemic at best, economists expect that strong investor demand will keep the yen well supported for the year ahead. A recent poll of Japan's 10 largest corporations showed that the current exchange rate against the USD is within one tenth of a percent of the average year?end forecast. For the week ahead, the market will focus on machine orders due on Tuesday, GDP on Wednesday and industrial production on Thursday.

Commodity Currencies - The commodity currencies are generally lower this morning as investors sell the group of high?yielders en masse. Raw good prices are beginning the week deep in the red with oil falling to $94/bbl, gold down to $1562/oz, and copper tumbling to $356/lb. The CAD broke back above parity against the USD in early trading as political uncertainty in the Eurozone weighed on risk appetite. Nevertheless, the loonie remains rather well supported within its recent ranges after last Friday's Canadian employment report showed that the economy added five times as many jobs as expected in April. The week ahead is light on data with CPI due on Friday. The AUD fell below parity against the USD for the first time in nearly five months as the drop in risk appetite prompted investors to sell the relatively high?yielding Aussie. However, the AUD losses were slowed by the Chinese authorities' decision to lower the reserve requirement ratio by 0.5% to 20% for major banks. This is the third such cut in the reserve ratio in the past six months and comes just days after disappointing trade and industrial production figures were released in China. No major economic data is set for release this week in Australia, thus leaving the AUD vulnerable to investor's willingness to hold riskier assets resulting from developments in the European debt and political crises.

MXN - The Mexican peso extended its fall from last week as European political concerns drives investors to the safety of the USD. Moreover investors are concerned that Europe's debt crisis will deter expansion in the US, Mexico's largest trading partner, leading to a further selloff of emerging market currencies. Despite continued domestic growth, investors will likely reduce exposure to both rates and currencies under current conditions.

RMB - The yuan dropped against the US dollar after the PBoC set a weaker daily rate and cut bank reserve requirements, reflecting concern over the slowing economic growth. The People's Bank of China lowered the fixing rate to 6.3040 per dollar, the weakest level since April 20. Lenders' reserve requirement was cut by 50bps in an effort to boost lending to the real economy and after data showed April industrial production, exports, new loans and retail sales increased less than forecast. Additional reserve cuts and further easing from the PBoC may be expected as policymakers seek to stimulate economic growth without having to slash the benchmark interest rate.