USD - The greenback undulated throughout last week, ending on a mixed note vis-à-vis its major world counterparts, falling against the NZD, AUD, and JPY, but rising versus the CHF, EUR, CAD, and GBP. Ultimately, this amounted to little more than a continued period of technical consolidation as
the low trading volumes so often associated with the summer doldrums have been contributing to the highly choppy price action, which may intensify further leading up to the US Labor Day holiday next week. Fundamentally speaking, recent economic data have been promoting a sense of cautious optimism as market participants have become increasingly convinced that these are the nascent signs of a veritable economic recovery: Durable Goods Orders (4.9% in Jul vs. -1.3% prior (rev.)); New Home Sales (433K in Jul. vs. 395K prior (rev.)); Annualized Q2'09 GDP (-1.0% vs. -
1.5% exp.); Univ. of MI Confidence (65.7 in Aug. (F) vs. 63.2 prior). This morning's Chicago PMI release (50.0 in Aug. vs. 43.4 prior) lends further credence to the notion of recovery. The main event risk for the USD will occur on Wednesday with the release of the minutes from the 8/12 Federal
Reserve meeting. The policy statement following the last meeting suggested that there would be a gradual resumption of sustainable economic growth resulting in the Fed's slowing of quantitative easing. The minutes should shed further insight into the state and future direction of US monetary policy, and the health of the world's largest economy. Finally, all eyes will be keyed-in to Friday's NFP report (Aug.), which is expected to show the 20th straight month of job losses, but at a slower rate of decline (-227K exp.).

EUR - The euro remains underpinned following continuing signs that the
Eurozone is emerging from recession. The single currency begins the
week well supported above $1.43 after touching highs above $1.44 last
week on the back of a string of positive economic reports. Industrial new
orders rose 3.1% in June, while the Eurozone Economic Confidence
Index, at an above forecast 80.6 in August, energized the euro last
week. Today's E-16 inflation report at -0.2% coming ahead of this week's
ECB meeting on Thursday also assured markets that the Central Bank will
likely hold rates steady. The euro is likely to remain underpinned as
optimism that the global economic recovery remains on track heightens
market confidence.

GBP - The UK is on holiday today. Last week's release of Nationwide
house prices showed yet another robust increase of 1.6% m/m. UK house
prices have now risen 6.3% from the bottom reached in February.
However, the UK economy is not in the clear yet. This week's PMI data
should provide further signals on the strength of the recovery. UK PMI
reports have already risen significantly, and if the pattern from the
Eurozone is replicated, we could see further decent increases in both
manufacturing and services. The GBP is closing August as the worst
performing major currency, having lost 3% against the USD and the EUR.
The drop is primarily due to investor sentiment changing on the backdrop
on a weak UK economy.

JPY - The yen rose as a fall in global equities encouraged investors to
buy the safe-haven currency. During the elections over the weekend, the
Democratic Party of Japan (DPJ) took the majority of the seats over the
ruling Liberal Democratic Party. Analysts say that the DPJ's victory will
create hope for the domestic economy and strengthen the yen. The new
president, Yukio Hatoyama, pledged to cut taxes and reduce the power of
bureaucrats. Retail sales rose 0.4% in July, beating forecasts of a 0.5%
drop. Last week, data showing exports falling 36.5% in July hurt the yen.
CAD - The loonie fell to the lowest level in almost two weeks on falling
crude oil and commodity prices. Crude oil, Canada's key export, fell on
talk of possible investment restrictions in China. If China's economy
slows down, it would pressure the global economy and reduce demand for
riskier assets. The Canadian unit was also held down on news that the
nation's economy contracted 3.4% annualized rate during Q2, more than
first thought suggesting that the recession is deeper than
expected. However, growth is expected to pick up in the current quarter.
MXN - Mexico's peso fell, heading for its biggest monthly decline since
February, on speculation that the government will fail to get congressional
approval for tax increases needed to rein in a widening budget deficit. The
Finance Ministry will send Congress its budget proposals on Sept. 8,
which is due to be inaugurated tomorrow. Mexico's shrinking economy,
which has led to lower tax revenue along with a 57% drop in oil prices so
far this year, will widen the 2009 budget deficit to the equivalent of 3% of
GDP from 2.1% in 2008 and in 2007, according to the government. The
country must create new sources of revenue to offset declining oil income
if Mexico is to avoid a downgrade of its debt rating.

CNY - The yuan is lower vs. the dollar at 6.8312. The yuan fell after
China's banking regulator cautioned bank's not to hasten bank loans
following a steep drop in bank loans in August. The fall in bank lending
raises concerns that the drop-off could lead to a fall in investment,
adversely the stock market and the economy.