USD - The dollar begins the week within in its recent ranges as investors find little direction with thin summer trading and a lack of major economic data. Stocks and commodities are generally lower as investors and economists alike discount the probability of a third round of quantitative easing with economic data having registered mostly positive as of late. While Fed Chairman, Bernanke, says the central bank still has "scope for further action to ease financial conditions," each successive round of stimulus will likely have less impact. Nevertheless, investors will be paying close attention to the Fed's annual summit in Jackson Hole, WY, the site where Bernanke first hinted at QE2 back in 2010. The market will also take note of consumer confidence and Richmond Fed data on Tuesday. The middle of the week sees the release of GDP, pending home sales, and the Fed Beige Book. The week closes out with personal income/spending and weekly jobless claims on Thursday and Chicago PMI, U. of Michigan confidence and factory orders on Friday. With the prospects of QE3 fading, expect the dollar's inverse correlation with overall risk appetite to direct trade as investors continue to view it is a relatively safe investment.
EUR - The EUR consolidated towards the top of its recent ranges in early trading after a measure of German business confidence fell by less than expected. The IFO survey fell from 111.5 to 111.2, which was better than the 110.8 forecasted. However, the forward looking "expectations" portion of the measure slowed by more than anticipated, dropping to 94.2 from 95.5. The common currency has also found support after a weekend of closed door meetings with German Chancellor Merkel warning her counterparts that are calling for Greece to exit the currency block to "weigh their words carefully." For the week ahead, EUR investors will also be watching the Fed's meeting in Jackson Hole with ECB President Draghi in attendance. Draghi has a speech scheduled for Saturday at which many are hoping he may provide some clarity on the Bank's plans to directly purchase sovereign debt in the region's struggling economies. In the meantime, the EUR could look to retest its recent highs against the USD as investors are reversing their bets on further EUR declines at the fastest pace on record.
GBP - The pound is trading in tight ranges this morning with UK financial markets closed for the summer holiday. The longer term outlook for the pound is improved this morning after technical indicators suggest a break above the key 1.60 handle may be in store. Signs that Eurozone policymakers are taking the necessary steps to backstop the region's struggling economies are providing support, while investors suspect that improved data out of the UK will keep the BoE from having to ease policy further. The economic slate is virtually empty this week, with the only significant release being the British house price index due on Thursday.
JPY - Despite the improvement in investor sentiment, the yen remains relatively well supported against its major counterparts. Demand for Japanese government bonds is sharply lower, dropping in August by the most in a year, as improving economic conditions elsewhere has prompted investors to seek higher yielding assets. While investors will take note of Japanese retail sales and employment data later this week, investors will largely be focused on Bernanke's speech this Friday and the possible effects further stimulus might have on the gap between US and Japanese debt yields.
Commodity Currencies -The commodity currencies began the week mixed with both the AUD and NZD falling while the CAD, MXN and ZAR all gain. Raw goods are in the red with oil falling to $95/bbl, gold dropping to $1669/oz, and copper at $347/lb. The CAD is higher for the second straight day despite the lack of major economic data and the falling price of oil - Canada's primary export. However, the price of crude may be set to jump higher in the days ahead with Hurricane Isaac expected to at least slow oil production along the Gulf coast. On the other hand, the AUD and NZD are both lower after data released over the weekend showed Chinese corporate profits falling 5.4% in July from a year earlier. As the main destination for the South Pacific nations' exports, the health of the Chinese economy is highly correlated to the strength of both the AUD and NZD.
MXN - The Mexican peso was little changed since last week, trading between the 13.10 - 13.20 against the US dollar. Domestic data were overall positive, with retail sales in June up 5.6% vs. the previous 5.2% and 4.5% eyed. Consumer prices for the second week of August rose 0.14% since the previous 0.09% gain, and core figures up 0.16% vs. the previous 0.09%. As Europe's debt crisis continues, the peso will likely remain pressured on risk aversion flows.
RMB - The Chinese Renminbi dropped as the central bank lowered the currency's fixing the most in three weeks. Premier Wen Jiabao commented on Saturday that China needed greater support on its export sector as outlook remains weak. Last week's Flash PMI inventory spike warned market participants of decreased trade activity and pricing complications for the PBoC. China's Flash PMI estimates printed 47.8 in August, a sharp drop from the previous 49.3.