USD - Last week's FOMC meeting provided very little news. As widely expected, the committee downgraded the growth assessment slightly on the recent deterioration of financial conditions and weaker housing data. The outlook remains for a moderate recovery and the Fed continues to signal that rates will be kept exceptionally low for an extended period. Over the past month, the market has adjusted its policy rate expectations considerably lower, as the recent market turmoil derailed the process towards normalization. An initial hike to 0.50% is not expected before June 2011. Homes sales data for May disappointed badly with both new and existing home sales declining. Industry data continues to look solid, with new orders transport up by 0.9% m/m over the past month. Moreover, the details show that the demand for capital equipment remains strong. Capital goods orders defense and aircrafts is up by 28.7% AR 3m/3m, which is the highest since 1997. This week's US calendar includes the release of the two most important data reports. On Thursday, the manufacturing ISM index is expected to remain unchanged at 59.7. The second major event of the week will be Friday's release of the June employment report. We expect the non-farm payrolls to fall 50,000, as Census workers are starting to leave federal payrolls. Private payrolls, adjusted for the Census effect, are expected to increase 200,000. Finally, focus will be on data for pending home sales. Hence a strong figure on Thursday will point towards a more robust recovery of the US housing market, following a few months with weak numbers for both existing and new home sales.

EUR - The euro is largely range-bound as a light economic data schedule last week competed with the World Cup and the onset of summer. The single currency remains in the same comfortable ranges between $1.21 - $1.24 seen most of last week. Pressure on the euro has eased as positive economic news helped reduce risk aversion, enabling the currency to climb back from its recent troughs below $1.2000. Last week, the Eurozone Purchasing Manager's Index (PMI) remained firm at 56 in June, showing the economy remains resilient. The euro may see more action this week as a heavier economic schedule may prompt market participants to keep their eyes on the markets alongside the World Cup games.

GBP - The UK's new Chancellor of the Exchequer, George Osborne, last week presented his long-awaited crisis budget. Government benefits will be cut significantly and VAT (Sales Tax) is to be raised by 3 percentage points to 20%. The budget was viewed as relatively tight by the market and has in the market's opinion removed - at least for some time - the risk of a credit rating downgrade by the international rating agencies. Overall, though, the budget has lent support to the pound and EUR/GBP has fallen to the 0.81 handle. This week's UK data include final Q1 GDP numbers on Wednesday - likely to be confirmed at +0.3% q/q - and PMI manufacturing data which probably will decline slightly from May's peak of 58. Nationwide house prices rose 0.5% in May but we are about to enter a period with more moderate house price increases.

JPY - The yen remains strong as investors take a step back from risk appetite and focuses on risk aversion as the global economy struggles. Last week, Japanese export and import data released both were sluggish for May, but the currency remains strong. This suggests the demand for Japanese yen has been largely fueled by a flight-to-safety rather than economic fundamentals. This week, Tankan Business Survey will be released.

CAD - The Canadian dollar is trading steady despite lower crude oil prices and the conclusion of the G20 summit. Last week, the loonie fell following weak Canadian retail sales and soft inflation data. The economic calendar is light today. Thus, the loonie will look to global developments for direction. This Wednesday, the market will eye gross domestic product data.

MXN - The Mexican peso started out last week with an almost 2% loss against the dollar, dropping to 12.7655, but has since pared gains after positive US economic data boosted investor appetite for higher-yielding emerging market assets. The US is currently Mexico's largest trading partner as it purchases 80% of the nation's exports - therefore, any significant economic data coming from the US can sway the peso in either direction. Recent release of better-than-expected US consumer confidence gave further support to what many analysts believes to be an undervalued peso as manufacturing and export data remains strong.

AUD - The Australian dollar remains supported vs. the US dollar above $0.87. The Aussie see-sawed last week on competing risk sentiment, ranging between $0.8859 - $0.8593. The currency is likely to build upon its gains as risk sentiment improves.