USD - The USD begins the week relatively flat despite the fact that the momentous election results in the Eurozone may serve as a referendum on the region's recent push for austerity. With Europe now not only struggling with burgeoning debt, but also divergent political views on the path towards economic growth, investors have turned to the dollar's relative stability and safe?haven status. However, with no new major economic data to offset lingering disappointment from last Friday's worse?than?expected nonfarm payrolls report, the dollar's gains have been limited to within its recent ranges. For the week ahead, the market will take note of the import price index, weekly jobless claims, monthly budget statement and the most recent trade balance data all due on Thursday. Friday sees the release of the producer price index and U of Michigan confidence. With stocks and equities beginning the week in the red, demand for the dollar's safety will provide support in the near term, but unless the economic recovery gains momentum, the dollar's upside remains capped as further Fed easing remains a possibility.

EUR - The euro plummeted following election outcomes in France and Greece that cast doubt on Europe's commitment to follow through on painful austerity measures. The euro fell to 3?month low vs. the dollar at $1.2955 before rebounding and suffered even larger losses vs. the British pound, plunging to a 3?1/2 year lows. European voters issued a sharp rebuke to painful austerity measures amid a deepening recession by voting out incumbent French President Nicolas Sarkozy while the Greek government fell into turmoil after the ruling coalition suffered heavy losses. Sarkozy lost to Francois Hollande, France's first socialist president in three decades, who is expected to advocate a pro?growth vs. austerity agenda and a loosening of fiscal policy. Meanwhile in Greek, as the only parties that had backed austerity measures, the ruling coalition faces no clear mandate to carry out the reforms required as part of the EU/IMF bailout and an opposition firmly against further cuts. Pressure will also ratchet up for Greece next month when the country is set to vote on EUR 11B in additional cuts required for continuing aid.

GBP - The pound is trading at its strongest level against the EUR since 2008 ahead of this week's BoE meeting on the 9th?10th. Sterling is considered a favorable alternative to the EUR with the changing political landscape hampering the common currency. It is anticipated the BoE will announce they are not going to increase bond purchases after the current GBP 325B pound program ended last week. It was also announced last week that the Swiss central bank boosted its holdings of Sterling from GBP 7.5B to 14.5B last quarter - helping the currency become the best performing currency of the majors in that time.

JPY - JPY is strong, trading below 80 and flirting with a break of the 100?day MA. There was no domestic data; however interest rate differentials are supportive of a lower USDJPY. Finance Minister Azumi reiterated that Japan is watching for speculative yen movement and will act on yen if necessary. The release of the minutes from the BoJ April 9?10th meeting were important as they highlighted the importance of the Japanese government's role in monetary policy. The ministry official at the meeting suggested that the BoJ should conduct policy decisively and promptly achieve its inflation target; while concern from one BoJ member that QE risks the appearance of monetizing of debt were dismissed.

Commodity Currencies - Crude Oil fell to the lowest level this year slipping 1.4% to $97.13 a barrel this morning. CAD has moved towards parity with the USD, mainly on the back of weaker than expected US employment data released on Friday. The market is also paring bet of tighter monetary policy after pricing in aggressive interest hikes in Canada with Governor Carney's increasingly hawkish stance. The minutes for the RBA May meeting indicated that the central bank is now entering a 'wait and see' period to assess what impact the cut has on the domestic economy. With the likelihood of another rate cut lessening in the short?term, the AUD reached a session high at 1.0275. With increased risk aversion, investors are flocking back to safety, leaving the Aussie unprotected. Toward the end of last week the Kiwi traded around the 0.80 handle, but it has since broken below as the disappointing employment data in the US and contentious
European elections weigh on risk sentiment.

MXN - The Mexican peso slumped to a 3?month low against the greenback last week as risk aversion set in on weaker?than?expected US jobs data and concerns over the European elections. The USD/MXN rose almost 2% since last Monday, touching a high of 13.2990, the highest intraday level since Jan. 19. Domestically, there was a huge trade surplus in March of US$1.57B. Exports rose 3.4% y/y, while imports kept a slower pace of expansion at 3.2%.

RMB - CNY fixing was up 137 pips at 6.2858 after Yi Yang, Head of the State Administration of Foreign Exchange stated that Historical evidence shows it's possible to see the exchange rate overshooting when a currency approaches an equilibrium level, which would hit the economy badly. Yi also reiterated that the yuan is no longer obviously undervalued and is gradually approaching an equilibrium level. Look for the CNY to trade within a range of 6.2660?6.3300 with CNH's range coming in at 6.2750?6.3450.