USD - The USD begins the week mixed against its major counterparts as fears return that the recent economic malaise will not be contained to just the Eurozone. A report from the Chinese government this morning, in which they lowered the outlook for the world's second largest economy to the weakest level since 2004, has spurred a selloff in global equity and commodity markets. Meanwhile, US factory orders contracted by 1%, down from last month's 1.4% gain, but better than the 1.5% shortfall that was expected. However, ISM Non?Manufacturing, which takes into account consumer spending, or nearly 90% of the economy, unexpectedly gained to 57.3 from 56.8 in the previous reading. The dollar is however lower against the EUR, GBP and JPY amidst rumors that a number of Asian governments have begun operations to weaken their currencies after a strong start to the year. Through these actions they will buy dollars, but then diversify a portion of those holdings into other G10 currencies, namely the EUR, GBP and JPY. For the week ahead, focus will be squarely on the US labor market with several private payrolls report due early this week in the run up to the nonfarm payrolls and unemployment reports, both of which are expected to show continued improvement.

EUR - The euro is slightly higher after earlier reaching a 2 week low vs. the dollar on signs an economic slowdown is underway in Europe and weaker growth in the China, heightening global growth worries. The single currency fell to lows at $1.3158 from last week's peaks at $1.3485 as the fading boost from the ECB's EUR 500 billion liquidity injection gives way to recession worries. The Eurozone Purchasing Manager's Index (PMI) fell to 49.3 in February, below the 50 threshold denoting contraction. The report was dragged down by downturns in Spain and Italy while Eurozone anchor, Germany, reported expansion, albeit at a slower pace. News that China cut growth targets from 8% to 7.5% added to risk aversion, further denting the euro, and raised concerns that recession in Europe may spillover into a global economic slowdown. With pressure on the euro returning, Europe will have allayed concerns that it will struggle to find its way back to growth.

GBP - Sterling opens this week relatively unchanged over a week ago against the dollar. After strengthening earlier in the week, the pound has come back following a report where the British Chambers of Commerce cut its growth forecast for the U.K. economy from .8% to .6%. They also predicted that rates would not rise until the end of 2013 that that The Bank of England would not add to their asset purchase stimulus. The Bank's Monetary Policy Committee meets this week on the 8th, where they are expected to keep their bond?buying target at 325 billion pounds.

JPY - JPY is strong, having gained 0.7% after China said it will lower its target for economic growth. This economic warning from China boosted demand for the relative safety of the yen as speculators shorted the JPY to the strongest net short JPY position of 2012. JPY strength is a combination of a correction to the currency's weakness from last week combined with a small spike in risk aversion.

Commodity Currencies - The CAD depreciated versus the USD for a second day and fell against a majority of its counterparts after China lowered its growth forecast, crimping demand for higher?risk assets. The loonie touched the lowest level in almost a week, dropping for the first day in five versus the yen. Canada's central bank meets on Thursday to determine interest rates - a change from 1% is unexpected. Meanwhile, the AUD has also come under pressure before the RBA meets tomorrow. Though no change in policy is expected, this is the first meeting attended by new board member Ridout. She is expected to be the voice of Aussie industry and has already stated her displeasure at the AUD's strength. Australasian markets will remain focused on Wednesday with Australian Q4 GDP due and the RBNZ (NZD) meeting in the evening. Both the Australian and the New Zealand central bank are expected to keep interest rates on hold. Despite the recent pullback in the commodity currencies, the spike in oil prices underscores that the market is very nervous about what is going on in the Middle East at the moment. On the one hand, it is a warning that if things go wrong with Iran, a very violent spike in oil prices may happen, and on the other hand it also suggests that a significant geopolitical premium is currently priced into oil prices.

MXN - The Mexican peso remained rangebound last week as the market grapples with Europe and US headline news. Stronger US growth data boosted the outlook for Mexican exports, but concerns of Spain posting a bigger budget deficit than estimated pressured the peso. Furthermore, Fed Chairman Ben Bernanke's comments before congress that the US economy will continue to underperform have proved bearish for the MXN.

RMB - CNY fixing released 141pips higher at 6.3121 vs. 6.2980 as the National People's Congress got under way. Chinese Premier Wen Jiabao announced the 2012 GDP target of 7.5%, along with an inflation target of 4.0%. The 2012 growth target is lower than 2011's goal of 8.0%, where actual growth came in at 9.2%, suggesting that the call for 7.5% is lower than the expansion that we will likely see. Look for the CNY appreciation trend to continue.