Forex traders were welcomed this week by a market filled with noise but little new information to provide any guidance. The Australian election was the main event over the weekend and the result produced a hung parliament since neither party gained the critical number of 76 seats for a majority. The Labour party took 72 seats and the coalition 70. The vast majority of pundits are harping on the uncertainly in Australia, should the talking heads continue, look for the AUD and risk-correlated trades to push lower.

Importantly, both Aussie parties in contention greed not to raise the mining tax (Green Party who advocating raising the tax didn't gain one seat). Equity markets and local rates didn't react to the news and the AUD rallied back from its pre-election levels. A nation such as Australia, with a stable political system and strong economic fundamentals, should be able to function just fine under a coalition government Also, the M6A activity should further support the AUD in the coming weeks. We are looking for short-term buying opportunities in the AUDUSD when risk conditions are favorable.

During today's Asian session, the EURUSD traded in a tight range after collapsing on Friday - the downside break of the 1.2800 level broadcasted Euro-bearish signals to global markets. Friday's uncharacteristically dovish comments from ECB member Weber started the EURUSD tumble. Then President of Bundesbank stated that the ECB would, probably, continue to provide unlimited liquidity through 2010 to support EU banks until the end of the year. He went on to say that the core portion of the ECB's exit strategy would be focused on Mid 2011.

Today's EU yield spreads are widening, especially PIIGS nations vs. Germany. Overall, the technical side of risk-correlated trades are bearish this week, but fundamentally, it's going to be US data that drives the Forex market this week.

The US dollar is going to have a tough week as economic data has been broadly weaker as of late. The recent FOMC statement in which they downgraded their US growth forecast plus Friday's disappointing jobless claims coming in at a new yearly high. The cherry on top Friday was the Philly Fed survey dropping into negative territory. The gloomy events of Friday have constructed a foreboding backdrop for this week's FX trading.

Otherwise, EU PMIs will be out this today, which most likely will come in around expectations but should have a more-or-less neutral effect on the Euro. In Japan, Chief Cabinet Secretary Sengoki confirmed that Prime Minister Kan and BoJ Governor Shirakawa had discussed the Yen and general economy via telephone this morning, but that FX intervention was not discussed. It still remains unclear whether the two men will meet this week -- regardless, the downside on the USDJPY remains protected by market anxiety. Look for sell-offs as attractive buying opportunities.

Overall, markets will be keenly watching US economic data this week - especially Friday's GDP figure. Given the market's over-reactivity to disappointing US data, the risk on the Greenback is skewed significantly to the downside.

Today's Key Issues (time in GMT):
06:58 EUR FRA Aug PMI composite
06:58 EUR FRA Aug PMI mfg
06:58 EUR FRA Aug PMI services
07:28 EUR GER Aug PMI composite - flash; prior 59.0.
07:28 EUR GER Aug PMI mfg - flash, 60.5 exp; prior 61.2.
07:28 EUR GER Aug PMI services - flash, 56.3 exp; prior 56.5.
07:58 EUR Aug PMI composite - flash, 56.4 exp; prior 56.7.
07:58 EUR Aug PMI mfg - flash, 56.2 exp; prior 56.7.
07:58 EUR Aug PMI services - flash, 55.5 exp; prior 55.8.
12:00 Hungary: Interest rate announcement, % Aug 5.25 exp / prior
12:30 USD Jul Chicago Fed national activity index; prior -0.63.
14:00 EUR Aug consumer confidence index; prior -14.1.
14:30 USD Kansas City Fed President Hoenig (FOMC voter) testifies