USD - Last week ended with another positive earnings session for corporate America that lifted U.S equity markets with the Dow Jones Industrial finishing Friday's session up 1% taking the week's gains to 3.2%. This morning, the USD declined against most of its counterparts as a bigger-than- forecast increase in new home sales of 330K encouraged demand for riskier assets. Given the increasing focus on the possibility of a double dip recession in the US, markets will be keeping a very close eye on this week's data releases, which include the Fed's Beige Book on 7/28.

The report is likely to point to the many obstacles the economy face as indicators suggest that the pace of recovery is slowing. Also in the spotlight will be Friday's release of the first estimate of Q2 GDP, which is expected to show growth of 2.5%(A); a modest slowing from 2.7%. Further, indicators such as the consumer confidence index and the Chicago PMI for July could provide further evidence of a loss of momentum, which may weigh on the Greenback. 

EUR - In what was a volatile Friday session, the Euro initially rallied from 1.2880 to a high of 1.2965 against the USD in early London trade following a much better-than-expected German IFO report. However, all eyes were on the release of the stress tests conducted on 91 European banks by the Committee of European Banking Supervisors. The committee announced that 7 banks had failed the tests with a combined shortfall of 3.5 billion EUR in funding required. As news trickled into the market, EUR/USD sold off to a low of 1.2790. Investors were quick to question how stringent the tests  were given they ignored the majority of the banks holdings of sovereign debt. European banks had already raised 220 billion EUR over the last 18 months and analysts had been expecting the tests to reveal a funding shortfall 10 to 20 times the 3.5 billion EUR. 

GBP - The GBP strengthened roughly 2.5% from last week's lows to reach 1.5500, the highest levels seen since April.  The move higher has been credited to a much stronger-than-expected GDP release (1.1% vs expected 0.6%) on the 23rd.  In other news last week, the BOE voted 7-1 to maintain their current level of rates, with Andrew Sentance again being the sole dissenter from the decision to leave rates on hold, favoring instead an increase in official rates to dampen inflation risks. This week will be quieter on the economic release front, with the focus being on housing starts (7/25) and money supply data for June being released (7/29).  The key release will be consumer confidence (7/29), where the market is looking for -20 versus last month's read of -19.  Look for Sterling to be range bound this week on the lack of economic releases, with the range trading from 1.5570 to 1.5397. 

JPY - The JPY began the session higher, appreciating against 12 of its 16 most-traded counterparts but later sold off, following higher-than- expected report on US new home sales.  JPY reached a one week low against CAD, with traders adding to their short JPY positions.  The Bank of Japan noted a 16% increase in JPY trading volume which will add some efficiency to the market at a time of year when summer doldrums often creates artificial volatility due to reduced participation in trading. Look for risk to be geared toward the downside for the JPY in the coming weeks with traders taking a bias towards long USD positions going into the August summer holiday.

CAD - Upbeat domestic data, a rally in global stocks, and oil prices near $80 a barrel have been supportive for the loonie.  Canada has restored 75% of its job losses since 2008.  Hiring surveys indicates further job creation ahead.  Also, Canada's sovereign debt status is strong compared to it G7 neighbors.  Last week, Bank of Canada raised interest rates by a quarter point to 0.75% for the second time in two months.  However, the central bank will probably not raise rates again this year as a government report showed the annual inflation rate is at the slowest in seven months amid moderating energy prices.  The loonie is expected to remain strong in the near-term.  However, gains may be limited amid ongoing worries about the U.S. economic recovery.  This week, the market will eye May GDP on Friday, which is expected to creep up to 0.1% m/m, from a flat reading in April. 

MXN - Mexico's peso appreciated along with risk appetite the past week, rising close to 1.65%reaching the low of 12.6877 during the opening of NY trading session.  Last Friday's trade balance data posted a significant fall to -340m vs the previous +178.9m and forecasted gain of +100.0m. However, the disappointing data was overshadowed by Friday's EZ stress test results which supported risk-related, emerging market currencies. Furthermore, rising US new home sales data coupled with increase in stock indices accelerated the pace appreciation of the peso today.  

AUD - The Australian dollar was the second best performing currency amongst the majors last week, with NZD taking first place, after RBA's policy makers signaled that there will likely be another interest rate hike in August due to inflationary pressures. Australia's annual inflation rate will be exceeding the central bank's target range last quarter, with consumer price index rising 1% in the quarter for an annual gain of 3.4%.  Inflationary pressures are largely supported by China's demand for natural resources which stoked a mining boom.  On the news tap this week, the AUD gave up some of its gains after PPI data printed a weaker-than- forecast 0.3% vs 0.8% eyed.  Depending on risk flow of the market, the Aussie may likely sustain highs of 0.9000 ahead of RBA's rate decision.