USD - The USD begins the week little changed from last week's close as market liquidity remains thin ahead of the upcoming New Year holiday. The dollar has come off its recent highs as risk appetite rebounds, albeit mildly, with stocks and commodities looking to close out 2011 in the black. The week ahead is light on data with a strong tone set this morning with consumer confidence data far exceeding expectations at 64.5 versus 55.2 last month. However, manufacturing data remains weak with both Richmond and Dallas Fed data falling short of forecast this morning. Investors will also take note of weekly jobless claims, pending home sales and Kansas City Fed data this Thursday, but major currencies can be expected to remain largely bound to their recent ranges in illiquid markets. Heading into 2012, the USD has only lost ground against three of its 16 most actively traded counterparts - the safe?haven JPY, CHF and GBP. On the other end of the spectrum, it has gained the most against emerging market currencies such as the ZAR, against which it gained nearly 19%. Despite a tumultuous year in which the US lost its coveted AAA rating, US government assets and the USD remain the primary benefactors of risk averse capital flows. With the ongoing debt crisis in Europe and slowing global economic growth, the USD will likely continue to perform well in 2012 as investors seek safety and stability.

EUR - Concerns about Europe's debt crisis kept the euro near an 11?month low as Italy approaches its year?end debt auction this week. Italy's three and 10?year bond auction may set the tone this Thursday as investors grow nervous about the outcome. In addition, timing may prove unaccommodating this week as trading remains quiet. Thinner trading may complicate Rome's plans to sell 8.5BN euros worth of debt. Despite the difference in Italy's debt dynamics than that of Ireland, Greece and Portugal, the country could suffer the same fate as it faces roughly 100BN euros in bond redemptions and coupon payments between January and April. As deadlines near and borrowing costs surge, investors fear that Italy may need an emergency bailout, which would renew doubts about the future of the euro.

GBP - The GBP remains well entrenched within its recent ranges as British markets are closed for the Christmas holiday. The pound spiked in early trading, led higher by a sharp drop in the EUR/GBP cross as investors continue to opt for the pound over its Eurozone counterpart. For the week ahead, the only major data point due is a measure of house prices, expected to show a modest decline from last month's reading. In the near term, the pound will continue to benefit from the ongoing Eurozone debt crisis as the relative safety of British assets attracts investors.

JPY - JPY is flat from Friday's close as markets remain focused on this week's central bank meetings and ongoing developments in Europe. USD/JPY continues to trade around 78.00, a level of recent congestion, while technicals remain bullish with the 50?day Moving Average (77.14) poised to cross the 100?day Moving Average (77.16) to the upside. Movement in JPY is likely to remain influenced by broader market sentiment ahead of the release of economic data later this week including trade data and GDP, with both expected to weaken.

Commodity Currencies ? The CAD is little changed despite the rise in the price of oil, Canada's primary export. Crude broke above $100/bbl after the US consumer confidence report beat forecasts, suggesting continued strong demand from the world's largest market for fossil fuels. With no major economic data due this week, the loonie will likely track the overall direction of oil. The AUD begins the week virtually flat from last week's close as concerns persist overall global growth in 2012. No major data is due in Australia either this week, but the Aussie will likely remain supported within its recent ranges as Australia's AAA rating continues to attract investors in light of the ongoing Eurozone debt crisis.

MXN - The MXN fell sharply against the US dollar today after Mexican local bond issues rose to a three?year high relative to overseas sales. Europe's debt crisis continues to erode the demand for emerging?market assets and as a result, the peso's slide is discouraging companies from issuing debt in dollars. According to Bloomberg, Mexican companies, states, and cities sold $16.5B worth of peso debt in 2011, compared with $17.5B of bonds abroad.

RMB ? The Chinese currency weakened to 6.3226 from 6.3198 as strong dollar demand from corporates took center stage. In a move to appease foreign critics the PBoC set the all?time high USD/RMB mid?point at 6.3152, ultimately allowing the currency to end 2011 even stronger. The Yuan gained 3.6% in 2010 and should close out 2011 with a more than 4% gain. Concern, however, is already mounting that China's currency will be unable to deliver the same appreciation figures in 2012 due to increasing apprehension over the economies deceleration. Look for the Yuan to remain stable in the beginning of 2012 as China gauge's the impact of the euro zone debt crisis, but for the currency to continue on its appreciation track with expectations of currency gains in 2012 slightly lower around 3%.