USD - The dollar regained its footing last week as investors grew cautious over prospects for the US economy and global growth.  The greenback reversed its recent losses vs. the major currencies after the Fed acknowledged that the pace of the recovery was slowing in its statement following the conclusion of its meeting.  The statement heightened speculation that the Fed may implement additional measures to jump start the sputtering economy and heightened risk aversion.  Despite the dollar's gains, the economy remains a mixed picture. 

Retail sales rose a modest 0.4% in July while unemployment claims climbed to an above forecast 484,000, indicating that the key ingredient to an economic recovery remains elusive.  Lackluster economic reports today from the NY Fed manufacturing survey at a below forecast of 7.10 and the National Association of Home Builders housing market index slipping 1 point to 13 is corroborating the view that the economy remains a mixed picture.  As a result, dollar firmness is presently based more on investor caution heightening risk aversion than underlying economic strength. 

EUR - The euro reversed its gains last week as investors grew more cautious over the global economic recovery.  The single currency slid nearly 4 cents last Wednesday from highs just below $1.32 to $1.28 as investor caution prompted an unwinding of risky trades in favor of safe haven dollars.  An unexpected -0.1% drop in Eurozone manufacturing in June precipitated the euro's decline as a recovery in Europe no longer appeared as assured.  Eurozone GDP grew 1% in the 2nd quarter but also highlighted the 2 speed economy with Germany as the engine of growth and southern
Europe-Greece, Spain, etc-still mired in fiscal woes.  The euro is likely to remain on the defensive as risk aversion remains the focus of investors presently.  

GBP - The 1.6000 level held firm and with the dollar strengthening across the board, we are now testing support around the 1.5500 level as 1.5530 was touched overnight.  Speculators are lining up for the first time in 2 years with longer GBP positions as the improved fundamental picture in the UK takes shape.  Retail sales and CPI are the headliners the week, with retail sales actually being the focus as the market is more concerned about the economic pressures versus pricing pressures.  Also, the BOE
minutes will be released, probably showing that Sentence was the sole dissenter in leaving rates unchanged.  If it comes out that he agreed to leave rates unchanged, it will be interpreted as the MPC is becoming more dovish.  Look for cable to move higher this week as the USD is slightly overbought at these levels.

JPY - According to the Japanese government, the economy grew only 0.1% in the 2nd quarter, well below even the most bearish expectations. The Japanese economy simply slammed shut, with the business community now blaming the far too-strong yen for this terribly weak data.  This data coincided with a NY Times article highlighting that China has overtaken Japan as the world's second largest economy.  Despite this news, the yen rose against most of its major counterparts as signs that the
faltering global recovery boosted demand for safe-haven assets.  The Bank of Japan is not likely to intervene in the currency markets unless the JPY trades up to 80 but anticipate verbal intervention in the meantime.  In other words, prepare for a bumpy road ahead!

CAD - The loonie fell after surprisingly weak Japanese Q2 growth data and softer commodities, igniting concerns about the global recovery, reducing the allure of growth-linked currencies.  Despite some positive U.S. data, the data was not strong enough to convince investors that growth is rebounding in the U.S.  Thus, the loonie will remain vulnerable to the shift in global growth sentiment.  The Bank of Canada will meet on September 21st   to discuss monetary policy. For now, there is a fifty-fifty
chance of a rate hike.  There are no domestic data releases until Canada's manufacturing sales and inflation data came out later in the week.  

MXN - The Mexican peso traded at a one-month low before appreciating back to 12.6500 levels following Finance Minister Ernesto Cordero's comments today.  Cordero commented that Mexico's economy may grow as much as 5% next year with GDP expected at a growth of 4.1%, higher
than last year's estimate, spurring appetite for the peso despite risk aversion flows.  Ahead on Friday, overnight rate is scheduled for release with forecast unchanged at 4.50%.  

AUD - The Australian dollar gave up last week's gains, trading under 0.9000 resistant against the greenback as risk aversion continued to take hold of the market.  As a commodity linked currency, the Aussie is being pressured by lower commodity and equity prices coupled with news from
China.  Over the week, a report showed China's industrial output slowed, raising continued concerns of a faltering global economic recovery. 

Tomorrow's minutes from the August RBA meeting, followed by
Governor Glenn Steven's speech that evening, should give investors further insight to Aussie strength.  Expectations are that policy makers will likely extend the interest rate pause and the focus will remain on domestic data releases from the region.