USD - Talk of double dip recessions, as well as the ongoing obsession with sovereign debt problems in Europe, and fears of contagion for the global financial sector, look set to dominate the headlines again this week. There were no official developments from the weekend's IMF meeting, however, there seems to be increasing consensus of what Europe needs: a larger aid package, the recapitalization of the weakest banks, and a plan for an orderly Greek default. The USD is fundamentally unattractive, but with high volatilities and risk concerns, markets should prepare for more USD strength. Data released this morning showed new house purchases in the US declined to a 6-month low, showing a 2.3% drop to an annual pace of 295,000. On Friday, we will receive data for core PCE. Being the Fed's preferred inflation measure, markets will look to this to see whether inflation pressure is easing. An increase of 0.2% y/y is expected, well within the Fed's confidence band. Some Fed members will speak this week, hinting as to the possibilities for further easing over the coming months are all we can hope for. Durable goods orders data for August are also due. After last month's massive gains, primarily driven by a huge airplane order, the figures should fall back a bit, dropping 1.9% m/m, but the overall trend points towards increasing domestic demand. On the same note, we will get the final reading of second quarter GDP and private consumption, with no major revisions from the last release anticipated. Consumer confidence measures may show a minor rebound after last month's huge declines, helped by the recent fall in gasoline prices. The University of Michigan confidence index should have increased slightly to 58.1, while conference board confidence is expected to land at 45.0.
EUR - The euro remains under pressure vs. the dollar as investors look for assistance from the European authorities. The single currency fell sharply last week after a more cautious statement after the Fed's meeting stoked risk aversion. The euro fell over 4 cents as investors seeking the safety of the US dollar sent the euro to 8 month lows below $1.33 before rebounding modestly today. Investor hopes were disappointed after a weekend meeting in Washington failed to result in any tangible measures to assist the ailing region despite pressure from US and other major economies. Signs of an economic slowdown are also compounding the region's troubles. Last week saw the Eurozone Purchasing Manager's Index fall below the 50 level denoting contraction. German business morale was also declined to its lowest level since mid-2010 at 107.5 for September, in a sign that Europe's engine of growth is slowing. The euro is likely to remain under pressure until the region can come up with a credible plan for its debt crisis and overcome its economic slump.
GBP - The pound rose for the first time in three days against the dollar after the Group of 20 pledged to make a strong response to challenges facing the global economy - thus damping demand for the safety of the dollar. Sterling also strengthened on optimism central banks around the world will act to counter the sovereign debt crisis. Despite the move higher, the pound lost ground against the dollar for the 5th consecutive week, the longest streak of the year. This week is light on economic releases out of the UK, so look for comments regarding the global economy to drive the pound's direction.
JPY - After a long weekend, JPY is strong, having gained 0.4% against the USD. USDJPY continues to trade in a surprisingly tight range, having spent the last month and a half moving between 75.95 and 77.86. However, EURJPY paints a different story, having reached a new 10?year low today.
CAD - The CAD begins the week near its lowest against the USD in more than a year after tumbling nearly 6% over the past seven days, the most since October 2008. After this weekend's disappointing G20 and IMF meetings, the loonie has continued to decline as the outlook for the global economy dims, and demand for Canadian exports will likely slow. The falling price of oil, Canada's primary export, has also weighed on the CAD with crude tumbling to a 12-month low this morning. Investors will pay particularly close attention to GDP data due out of both Canada and the US later this week with a modest gain expected.
MXN - The Mexican peso fell over 8% against the greenback last week before retracing sharply on Friday, amid speculation that policy makers will act to support the currency after the drop. Last week, Moody's and S&P both downgraded the qualifications of many European and US banks, multiplying investors' concerns related to the liquidity of global credit institutions. In response to recent concerns, Group of 20 finance chiefs commented they are committed to addressing renewed challenges and that the recent sell-off in the region's assets would be temporary. However, the volatility in the market suggests that investors are still skeptical, thus further weakening of the peso may be expected.
AUD - The AUD continued its descent, falling further below parity with the USD, reaching its lowest level since last November as investors shed riskier assets. The Aussie is off nearly 13% from its record high of 1.10 reached just two months ago, but the decline has been actually somewhat muted. The run up in the AUD's value was largely due to the seemingly insatiable Asian demand for Australian mineral exports. However, with the Chinese economy rapidly cooling, demand has wavered as reflected in the share price of BHP Billiton, Australia's largest company and one of the world's leading miners, which has fallen over 30% in the same period. The Aussie's decline has been less severe with Australia's AAA credit rating and attractive interest rates lifting the currency's role as a global reserve.