USD - The USD begins the week higher against most of its major counterparts on waning risk appetite. Global financial markets ended last week generally higher after a tumultuous week that saw new leaders installed in both Greece and Italy. While the moves were initially cheered, disappointing results from an auction of Italian 5-year bonds this morning have markets again fearing the worst. Meanwhile, investors remain on edge in the US as the so-called congressional super committee set up in the latest budget deal appears to be deadlocked just days before a deadline by which the group has been tasked to cut billions in government spending; or else, more than $1T in automatic cuts will kick in. The economic slate this week is quite full with PPI, retail sales, and empire manufacturing all due on Tuesday. The middle of the week sees CPI and industrial production both on Wednesday, and housing starts, weekly jobless claims and Philly fed all on Thursday. The week closes with leading indicators on Friday. While US inflation data will be closely watched with expectations for further easing of price pressures, investors will remain largely focused on the developing Eurozone debt crisis. The political impasse over budget cuts brings the US's own struggles with debt into the spotlight, the USD's role as a safe-haven currency will likely keep it well supported in the near term.

EUR - The euro is lower vs. the US dollar as optimism over new leadership in Greece and Italy gives way to the difficult challenges facing both countries. The single currency fell to lows just above $1.36 as German Chancellor Angela Merkel called the debt crisis Europe's toughest hour since World War II. In Greece, new Prime Minister Lucas Papademos faces opposition from conservatives over any toughening of austerity measures and expected demonstrations Thursday. Meanwhile, new Italian Prime Minister, Mario Monti, replaced the widely unpopular Sylvio Berlusconi as jubilant Italians celebrated. Nevertheless, Italy paid its highest yields since euro membership--6.30% to sell 5 year bonds, highlighting the difficult task ahead for Monti, a former EU commissioner. Amid the tumult, Eurozone industrial production fell 2% in September on a further sign of looming recession for the region. Given the difficult choices facing the region, Europe's new leaders appear to have a very small window to maintain market confidence before the euro again comes under pressure.

GBP - The GBP is sharply lower against the USD this morning, but relatively flat against the EUR as risk aversion drives investors away from European currencies. However, the sterling's drop over the past week has been less precipitous than that of the EUR, down only 1.8% from its recent highs versus 4.1% for the EUR, as demand for the relative safety of British government bonds provides support. In the coming days, investors will take note of British CPI, RPI, labor market data, and retail sales. While general risk aversion will continue to weigh on the pound in the near term, its role as a primary alternative to the EUR will provide downside support.

JPY - The JPY is outperforming the USD as Q3 GDP figures provide further support that the economy is recovering from this week's natural disasters. GDP rose 1.5% QoQ, and 6.0% YoY, ending a technical recession marked by three quarters of contracting output as exports drove the gains in output. USDJPY fell below 77.00 for the first time since the October 31st intervention and is trading under the 50 day MA of 77.93. The positive data will provide some reassurance to policymakers at the BoJ, where expectations are for an unchanged stance at this week's meeting and continued easing in the medium term.

CAD - The CAD is lower against the USD for the first time since last Wednesday on renewed concerns that the Eurozone nations will struggle to service their debt load. The loonie also pared its recent gains against the majority of its major counterparts as the price of oil, Canada's primary export, fell as investors scale back expectations of global economic growth heading into 2012. The week ahead is rather light on economic data with Friday being investors' main focus with Leading Indicators and CPI data due. Inflationary pressures are expected to have eased, giving the BoC room to keep interest rates on hold for the foreseeable future or even lower them should global economic conditions worsen.

MXN - The Mexican peso remained range-bound against the greenback last week as risk aversion prevented the currency from making any concrete gains. Mexico posted a surprise gain in the consumer prices for October, with m/m figures jumping higher by 0.67%. Energy prices served as the primary driver forcing inflation to higher levels as prices followed a seasonal trend towards the upside. Last week's hike in Italian bond yields have significantly dampened appetite for higher yielding currencies, suggesting the peso will stay pressured in the near-term.

AUD - The AUD is lower against half of its major counterparts this morning on waning risk appetite. The Aussie ended last week on strong footing after both Greece and Italy selected new leaders. However, this morning's disappointing bond auction in Italy, which saw the yield on 5- year notes spike to 6.25%, spurred investors to liquidate higher yielding assets in favor of the safe-haven JPY and USD. With little major economic data set for release this week, the AUD will likely consolidate within its recent ranges with downside risks to global growth likely outweighing any modest return of risk appetite.