USD - The USD begins the day stronger against nearly all of its major counterparts other than the JPY as investors' appetite for risk wanes. Stocks and commodities dropped early with concerns that the ongoing European debt crisis will weigh on global growth, but encouraging US data has offset the negative sentiment. While a gauge of New York area manufacturing registered sharply lower than expected 6.56 versus 20.21 in the previous month, US retail sales outpaced even the most optimistic of forecasts at +0.8%. The reading is lower than last month's +1%, in light of recent weak labor market data, better?than?expected growth helps reaffirm that the US will continue to outperform many of its peers. Treasury International Capital data released this morning showed that demand for long?term USD denominated safe?haven assets eased last month, totaling just $10.1B after soaring to $102.4B in the previous reading. However, should the Eurozone situation deteriorate, demand for USD?denominated assets will likely push higher, providing support for the dollar as investors are attracted to its relative safety. The economic calendar is light for the week ahead with industrial production and housing starts both due out tomorrow. The week closes with jobless claims, existing home sales, Philly fed and leading indicators all on Thursday.

EUR - The euro slid vs. the dollar on mounting concerns over Spain. The single currency hit 2?month lows overnight, falling to $1.2993 before limbing back above $1.30 on improved European export data. Spanish government bond yields climbed with the 10?year rising above 6% for the first time since December while the cost of insuring Spanish debt hit record highs. The Spanish government also announced it may impose budget curbs on regional authorities in return for extending credit lines in an effort to rein in its budget deficit. Although the government has stated that it is committed to major budget cuts, concern is growing that the recession will make it impossible to meet deficit targets and Spain will be next to require a bailout like that of Greece, Ireland and Portugal. The euro received some support from news that European exports rose strongly in February with a EUR 2.8 billion trade surplus, reversing the previous month's decline of French and German exports. Highlighting the downbeat economic outlook, last week also saw Investor Confidence falling a lower than expected at ? 14.7 and Industrial Production slipping ?1.8% y/y.

GBP - Despite starting the week slightly lower against the dollar, the pound rose to its strongest level in 18 months against the EUR as investors sought the perceived safety of U.K. assets. Home prices in the U.K. increased to a record level last month - rising 2.9% while in London they rose 2.1%. This has investors believing the BoE will not add to their asset purchase target of 325B GBP. This week brings CPI on Tuesday and the BoE minutes on Wednesday. It would be surprising to see the GBP break the 1.6000 level before next week's GDP release on the 25th.

JPY - JPY is stronger, up from Friday's close, as FX markets continue to show signs of risk aversion. However, safe haven gains in yen are being dampened by dovish rhetoric from the BoJ ahead of the April 27th policy meeting. Governor Shirakawa has stated that the BoJ is maintaining its effort to battle deflation; while market expectations are that the central bank will pursue further easing, in the form of asset purchases, in order to generate inflation close to the recently announced 1.0% target.

Commodity Currencies - The loonie is flat leading into today's trading session, and continues to trade comfortably within its 10?week range. The most important near?term driver is the BoC meeting tomorrow. Data continues to be uneven, but is generally supportive of economic that is growth. As such, the BoC is expected to show a more hawkish stance, which could be positive for CAD. The AUD fell from 10?day highs reached last Friday as a deceleration in the growth of the Chinese economy spooked investors. The AUD also remains weighed down by renewed concerns for Spain as well as a decrease in US consumer sentiment. In a risk?off environment, the Aussie dollar has fared better than others as investors predict it is ossible Chinese GDP figures may prompt easing of China's monetary policy. If this is indeed the case the Aussie may gain from a greater level of liquidity available to purchase Australian exports. The NZD fought hard against risk averse markets last Friday, rising to one month highs of 0.8310. e?emerging fears for the health of the Spanish economy, as well as the softer than expected US data, deflated the NZD which was trading lower at .8230. Looking heavy still this morning it opened unchanged ahead of a week likely to be driven by investor sentiment.

MXN - The Mexican peso continued to weaken after China reported its slowest first?quarter growth in three years last week. So far this month, the peso has lost about 2.8% ? underperforming most of the LatAm currencies. Positive US data will likely be the driver of any pick?up in the peso this week as the MXN lacks solid fundamentals for posting gains.

RMB - The People's Bank of China (PBOC) announced that they will widen the trading band on CNY to 1% from 0.5%, allowing for more volatility and taking another step closer towards the internationalization of the RMB. The move was widely anticipated, however, it may indicate that China perceives that the RMB is trading closer to fair value after appreciating 20.3% since 2007. After the move, the CNY fixing came in 81 pips higher at 6.2960, while the offshore CNH rates rose to 6.3150. Going forward, both CNY and CNH should see increased volatility prompting increased hedging needs from clients. Look for the RMB to appreciate between 2?3% in 2012.