USD - Consumer spending stalled in December as Americans used a jump in incomes to restore depleted savings, indicating the biggest part of the economy will not be a driver of expansion. Purchases were little changed after rising 0.1% the prior month. Incomes climbed 0.5% last month, the most since March, after a 0.1% gain the prior month. From Bernanke's perspective, today's data will reaffirm the need to maintain an ultra?accommodative monetary policy until unemployment eturns to more desirable levels ? namely, below 8.0%. Until then, QE3 will remain a viable policy tool for the foreseeable future. This week will see significant data releases with both ISM manufacturing and non?farm payrolls. The ISM manufacturing is expected to grind higher again to 55.0 from 53.9. Jobless claims have continued lower and point to continued improvement into 2012. Non?farm payrolls are expected to rise 145k in January after 200k in December. This will keep payrolls on a 3m average around 150k, slightly up from the average in the previous quarter at 140k. However, a couple of factors could affect payrolls negatively. First, the weather was mild in December, which gave a boost to construction payrolls. This should be reversed in the January reading. Second, government employment was slightly above the recent trend and we anticipate some retrenchment here as well.

EUR - The euro backed away from 6?week highs vs the dollar amid lack of progress on Greek debt talks and signs of slowdown in the Eurozone. The single currency fell to lows at $1.3074 after hitting recent peaks at $1.3230 on easing risk aversion. A meeting of European leaders today to put in place a permanent rescue fund for the Eurozone was stymied as member countries were unable to agree to final terms. The setback along with Greece's unresolved debt restructuring negotiations soured investor hopes, sending global equity markets lower. Highlighting the mounting pressures in the region, Spain reported GDP contracted 0.3% in the last quarter of 2011 while the cost of insuring Portugal's debt increased to new highs behind only that of Greece. With both Spain and Portugal facing prospects of sliding into prolonged recessions amid slipping investor confidence, euro upside is likely to be contained and downside pressure to return.

GBP - The pound has fallen 0.3% versus the USD this morning while gaining on the crosses as markets remain tentative given the considerable amount of headline risk. This move reverses some of last week's gain of close to 1%. Upside movement is likely to remain limited given the additional asset purchases expected to be announced at the next BoE meeting set for February 9th. This week's key releases include the PMI indices, with manufacturing, construction, and services to be released on Wed, Thurs and Fri respectively.

JPY - JPY is flat given persistent headline risk arising from this week's global events and data releases. Domestic data will include the manufacturing PMI, industrial production and employment figures (released Monday following the NA close). USDJPY has returned to the lower end of its 2012 range, given the tentative market tone, where movement has been seen between 76.33 and 78.28.

Commodity Currencies - The Commodity Currencies begin the week sharply lower against the safe?haven USD and JPY on the continued worries that Greek debt talks will drag on for weeks to come. The CAD fell against the USD for the first time in four days on broad risk aversion and after last week's disappointing economic data out of Canada. Nevertheless, the loonie gained against most of its other counterparts on speculation that the nation's export market will benefit from surprisingly resilient economic growth in the US, Canada's main trading partner. On the other hand, the AUD has come under renewed pressure as the second largest economy and Australia's main trading partner, China, is quickly cooling. It appears that the correlation between the CAD, AUD and other currencies that tend to be tightly associated with the price of commodities may be easing with a review of purchasing power parity suggesting that the AUD is 28.6% overvalued against the USD, while the CAD is 6.2% undervalued, the widest gap between the two since at least 1990.

MXN - Despite the declines in most all LatAm currencies against the USD on Monday as a result of the concerns over Greece's inability to avoid default, the Mexican Peso continues to hold stronger than its 100?day moving average. The peso's resilience beyond this technical level, which began on Jan 16th, is the longest in more than six?months. If concerns about Greek debt eases, the MXN is likely to resume gains against the dollar.

RMB - After the first day back to trading after the Chinese New Year's holiday, USD/CNY has weakened to 0.4%, coming in at 6.3056 and moving closer to the 50?day moving average of 6.3366. The markets will look towards the release of manufacturing PMI figures due out tomorrow, where expectations remain for a drop to 49.6 from 50.3, possibly signaling the start of contraction in the Chinese manufacturing markets.