USD - Fragile investor confidence in global sovereign debt was dealt another blow overnight by reports that the US Super Committee has failed to reach an agreement on plans for budget cuts totaling at least USD1.2 trillion. The failure to reach an agreement between the Republicans and Democrats should result in the imposition of automatic cuts to domestic and defense spending totaling USD1.2 trillion, which are set to take effect from 2013. The Congressional Budget Office estimates that around 71% of the cuts would come from discretionary areas such as education, the environment, transport, housing assistance, and veteran's health care. The imposition of automatic cuts should satisfy the credit ratings agencies for now with the US's sovereign rating on negative watch but could worsen the fiscal drag in the US next year with a lower probability of the government extending the payrolls tax cuts and insurance benefits for unemployed. The potential negative implications for future US and global growth should prove more USD supportive in the near-term outweighing the negative implications for the US credit risk premium, thus the EUR/USD may test the year's low of 1.2907 before year end.

EUR - The euro is lower vs. the dollar as debt fears on both sides of the Atlantic drives risk aversion. The single currency slipped to lows at $1.3429 as concerns over lack of a budget agreement in the US and spiraling sovereign yields in Europe prompt investors to seek the safe haven of US dollars. Victory by Spain's center-right People's Party did little to restore confidence as yields on Spanish bonds continued to climb. Despite the new government's pledge for further austerity measures, Spanish 10-year yields rose to 4.72% above benchmark German bonds, up 0.28% from Friday. Moody's also warned Monday that it may downgrade France's AAA rating, citing rising debt yields and slowing economic growth. The challenges France, the Eurozone's 2nd largest economy, faces are a further sign of the pervasiveness of the problem and the difficulties the region faces in resolving its issues. Given this, pressure on the euro is likely to continue until market confidence is restored.

GBP - Sterling dropped to a one-month low against the USD this morning, but remains well supported against the EUR. The economic outlook in the UK is grim at best with housing prices falling by the most in a year and as concern grows that the sputtering economy may not avoid another recession after all. Far from instilling confidence in the market, PM David Cameron told reporters this morning that Britain was well behind where it needs to be and that the sovereign debt crisis in the Eurozone, the main destination for British exports, is having a chilling effect on growth.

JPY - JPY remains unchanged, having gained 1.6% so far this month. Although USD/JPY continues to hover around its 50 day Moving Average (76.93), its downward trend was slowed considerably as it approached and breached 77.00. Japan's trade figures for October disappointed, with a deficit of ¥273.8bn vs. expectations of a ¥39.9bn surplus, mainly as a result of the impact of flooding in Thailand. Lastly, the BoJ's minutes from October 27th were released, where one board member suggested increasing the central bank's asset purchases by ¥10trn, double the amount announced at that meeting.

CAD - The CAD begins at a six-week low against the USD on the reduced demand for risk thanks to political gridlock in the US and the ongoing Eurozone sovereign debt crisis. The loonie is also lower as the price of oil pulled back from its spike above the key $100/bbl barrier late last week, which was clearly driven by market speculation and not increased demand for crude. However, the CAD's downside appears to be limited as its role as a global reserve and currency of settlement grows. China announced that it would begin directly settling RMB transactions vs CAD, and Iceland is apparently considering abandoning their own currency, the krona, in favor of the CAD due to strong economic ties to Canada.

MXN - The Mexican peso falls to a seven-week low this week as concerns over US lawmakers failing to reach an agreement on budget cuts spurred further global equity losses. The expectations of the supercommittee unable to make an agreement, coupled with the continuous lack of news from Europe are deterring risk trades, which will be bearish for the peso in the near-term.

AUD - The AUD is sharply lower this morning against the USD as riskaversion takes hold of the market. The Aussie dropped below parity with the USD for the first time since the beginning of October, and for just the third time this year. With little economic data due in Australia this week, all eyes will be on the debt crisis in Europe and the political deadlock in the US. As such, the AUD will likely remain under pressure in the near term on waning investor risk appetite and as expectations grow that the RBA will lower interest rates in the coming months.