USD - This morning's consumer confidence index showed an unexpected fall in May, to the lowest level in four months as Americans grew more pessimistic about the economy. The Conference Board's confidence index decreased to 64.9 from a revised 68.7 in the prior month. This week's U.S. calendar will be dominated by Friday's data releases, ISM and non?farm payroll, which may provide markets with some welcome relief from the ongoing debacle in Europe. The manufacturing index for May is slated to have weakened somewhat, as the majority of local PMI surveys showed signs of weakness. The market consensus is for a 53.8 reading for the ISM on Friday. If the ISM holds around this level, it will be consistent with GDP growth of around 3%. The unemployment rate is forecast to remain unchanged at 8.1%. The ADP private sector employment report will, as always, provide some advance direction. Non?farm payrolls should add 170,000 and a private reading of 180,000. Following a few months with adverse seasonal effects depressing the payroll readings, a less distorted May figure is expected. This should help shed some light on the underlying condition of the US labor market, particularly whether the recent weakness reflects an underlying trend. A weaker?than?expected figure would raise the likelihood of further rounds of quantitative easing by the Federal Reserve. Under such conditions, the SUD will likely remain rangebound against most of its major counterparts as generally positive economic data offsets lingering fears of further Eurozone woes.

EUR - The euro is hovering near 2 year lows vs. the dollar as market attention turns to Spain as the next hot spot. The single currency hit lows at $1.2508 overnight, continuing its steady declines from last week. Spain said that it planned to issue new debt to recapitalize troubled bank, Bankia, which has asked for EUR 19 billion in assistance in addition to the EUR 4.5 billion already provided. Yields on 10?year Spanish government debt rose to just under 6.5% while equivalent German bond yields hit new lows at 1.347%. With spreads between Spanish and German debt approaching euro era highs at 5.15%, concerns are growing that Spain may be the next country to require a bail out. Greece meanwhile, received some relief Monday after conservative parties that advocate remaining in the euro led in opinion polls over the weekend. With Spain also in the spotlight, pressure on the euro will likely only continue.

GBP - The GBP extended its decline against the US dollar last week as GDP in the UK dropped 0.30% vs. the previous reading of ?0.2%. The figure suggests that the BoE may bolster its QE program to the economy back on the road to recovery. Further pressuring the sterling, UK bond yields have fallen to new lows with the 2?year yield down to levels not seen since 2009. With no significant data releases from the UK this week, the sterling will likely be driven by broader market themes and risk sentiment.

JPY - USD/JPY is quiet, trading in a multi week range of 79.00 to 81.00. Fundamentals were weaker than expected, with the jobless rate increasing to 4.6%, retail trade falling 0.3%m/m and small business confidence dropping to 47.2. In addition, over the last several sessions, US?Japan yield spreads have shifted higher putting some upside pressure on USD/JPY. Economic fundamentals and BoJ policy continue to support a higher USD/JPY (weaker yen), while risk aversion supports downside. Look for the USD/JPY to continue to trend higher throughout 2012.

Commodity Currencies - The commodity linked currencies are lower this morning against their counterparts, as investors seek safety amid concerns that Spain's financial situation is worsening. However, commodities climbed amid speculation Greece will stay in the euro. Raw goods have pushed higher with oil rising to a one week high at $92.09/bbl, on speculation that economic growth will boost fuel demand in the U.S. Gold advanced to $1575/oz, and copper rose to $349/lb, the most in four weeks on speculation that China, the world's biggest metals consumer, will take more action to stoke economic growth. CAD is headed for the biggest monthly loss since September against its U.S counterpart as speculation that Europe's debt crisis will dampen appetite for risk. The most significant upcoming domestic risk is the June 5th Bank of Canada meeting, where Governor Carney is expected to dampen his hawkish tone with the ongoing uncertainty in Europe the bias remains that volatility will continue to climb higher putting temporary downward pressure on CAD. The AUD and NZD both extended recent declines against the USD on concerns over solving the euro area debt crisis and curbed included demand for riskier assets.

MXN - The Mexican peso broke above the psychological 14.00 barrier against the USD last week as the market was being overwhelmed with negative data points out of China and Europe. However, this morning, the peso recovered modestly as rising stock and commodity markets prompted a bit of risk taking. With increasing negative releases from China and ongoing European turmoil, the peso will likely remain pressured in the near to medium term due to risk aversion flows.

RMB - The yuan fixing came in at 6.3262 with CNH ranging between 6.3405?6.3470. Equities pushed higher across Asia even as China denied the release of another massive stimulus package to support economic growth. Look for the currency to continue to push higher within recent ranges.