USD - The US dollar is higher against many of its major counterparts with investors drawn to its relative safety as stocks and commodities begin the week in the red on renewed global growth concerns. With no major economic data due out of the US until Tuesday, the USD's overall direction is being driven by external factors. As such, the greenback has been unable to extend its rally against the EUR late last week, falling nearly half a percent lower in early trading, after a surprisingly well subscribed Italian debt auction. However, the US economy will soon reclaim center stage with investors' focus shifting to US inflation. The producer and consumer price indices, due tomorrow and Wednesday respectively, highlight this week's slate of economic data with both expected to tick marginally higher as food and fuel prices continue to rise. Investors will also take note of retail sales data due on Tuesday, which is expected to show a modest rebound after last month's half?percent decline. Wednesday sees the release of Empire manufacturing, TIC flows, industrial production and capacity utilization. The week closes out with weekly jobless claims, housing starts and Philly Fed all on Thursday, and U. of Michigan confidence and leading indicators on Friday. Markets are also paying closer attention to US politics with the polarizing pick of Paul Ryan as the presumptive Republican vice?presidential candidate clearly drawing a line in the sand on the fiscal debate. The pick reduces the odds even further of bipartisan compromise ahead of the November election with the so?called fiscal cliff looming soon thereafter. The uncertainty will likely keep the dollar supported within its recent ranges, but also makes it increasingly difficult for investors to view it as a relatively safe asset.

EUR - The common currency begins the week higher against the USD for the first time in five days as an Italian debt auction drew surprisingly healthy demand. The common currency had begun the overnight session near the bottom of its recent ranges after ECB Governing Council member and Belgian central bank President Luc Coene told reporters that "it makes no sense for the ECB to start financing Spain and Italy [as] it will only lead to the ECB taking on the whole public debt of both nations." However, the Italian debt auctions helped alleviate some of the inevitability of ECB action, which has proved supportive for the common currency. Nevertheless, it's clear that not all ECB members are in agreement on what preconditions EU states requesting assistance would need to meet, which will likely limit the EUR's upside potential in the near term. All eyes will be on German Chancellor Merkel this week with investors looking for her stance on the ECB plan as she returns from vacation.

GBP - Sterling consolidated within its recent ranges this morning, albeit towards the lower end as the outlook for the British economy remains grim. While the Olympic Games brought much attention and fanfare to the UK, as BoE Governor King put it over the weekend, "unlike the Olympians who have thrilled us, [the] economy is not at full fitness." Investors will pay close attention to inflation, retail sales and labor market data all due this week to asses just where the British economy stands, but with the outlook expected to be quite negative. The pound will likely struggle against many of its counterparts.

JPY - The yen is flat against the dollar, but has edged higher against nearly all of its other counterparts amid renewed concerns that Europe's debt crisis will continue to weigh on global growth. Japanese GDP data was released overnight, revealing a sharper?than?expected deceleration in Q2 economic growth with the figure falling to 1.4% from an upwardly revised 5.5% in the first quarter. Expansion in the first half of the year still proved to be surprisingly strong, averaging 3.5%. However, with no further major economic data due this week, the yen will continue to derive its direction from overall risk sentiment.

Commodity Currencies -Commodity linked currencies have pared some of their recent gains overnight as global equities begin the week in negative territory. The CAD has pulled back from its recent highs after five consecutive weeks of gains against the USD as the price of oil, Canada's primary export, looks to be headed back towards the key $90/bbl handle. Technical studies also suggest that the CAD may be overbought at this point with a fall back towards parity with the USD possible in the next few days. The AUD is also lower on waning market risk appetite, but remains well entrenched towards the top of its recent ranges. The correlation between stock/commodity markets and the high?yielding AUD and NZD's has broken down over the past several months. Australian and New Zealand interest rates are the first and second highest amongst the G10 nations, and their economies are growing at more than double the average pace of their counterparts. In addition to high returns and resilient growth, investors are attracted to their AAA credit ratings. As such, the commodity linked currencies will likely remain well supported in the near term, even as concerns over Europe's debt crisis lead financial markets lower.

MXN - The Mexican peso continued its gain against the greenback last week on recovering risk appetite. However, underlying concerns over Europe's debt crisis and China's slowdown in growth are putting investors on edge about the outlook of LATAM markets. Furthermore, Mexico's annual inflation rate rose to a 28?month high in July as the bird?flu outbreak and drought pushed food costs higher. According to the central bank, food prices will eventually reverse as inflation risk is likely to be temporary.

RMB - The Chinese Renminbi reversed some of its recent gains after a report showed China's exports grew only 1% y/y in July, substantially underperforming market estimates of an 8% reading. Imports also fell short of estimates, posting 4.7% vs a 7% forecast. Subsequent to the release, Bank of America joined Deutsche Bank and Barclays in cutting growth forecasts for China, lowering its growth forecast to 7.7% from 8%. Further putting pressure on China's currency, local lending dropped to CNY540B in July, from CNY919.8B in June and CNY700B expected.