USD – Markets are looking for indications that the US economy is resuming a modest growth path, after the surprise contraction in activity in the final quarter of 2012. Friday’s solid January employment report pointed in this direction, but it is still likely that the Fed will maintain its stimulus policy for some time yet. The main US release this week will be the ISM non‐manufacturing index. The index measures business activity in a large part of the economy including the service sector. As the biggest supplier of jobs to the US economy, it will be important to see how the employment component of the index comes out. The headline number is expected to decrease slightly and land at 55.6, which is still well above the ISM manufacturing index. Also of interest is the release of initial jobless claims, on Thursday. Claims have been quite low in the past couple of weeks but rebounded last week to the December levels, indicating that seasonal distortion was the reason for the low numbers at the beginning of January. The upcoming release will provide us a clearer picture of the actual claims number for this month and a better indication of the trend in the labor market. Trade balance figures for December are also due for release and, as national accounts data for the fourth quarter showed a significant decrease in exports, the trade balance is anticipated to remain at the low level seen in November.EUR – Euro gains moderated after the currency rose to over 2 year highs last week. The single currency fell back below $1.36 after climbing to highs at $1.3758 last Friday following a jobs report in the US that left room for continuing monetary stimulus. Political uncertainty is weighing on the euro amid improving economic fundamentals. Euro zone sentiment rose for the sixth month consecutive month in February to ‐3.9 from ‐7.0 previously in signs that the region is beginning to grow again. Producer prices also declined ‐0.2 in December, leaving open the possibility of further rate cuts to revive the economy. But political developments are also weighing on the euro, threatening to derail progress. Over the weekend, Spain’s opposition Socialist Party called on Prime Minister Rajoy to resign over a corruption scandal amid the lowest support on record for his People’s Party. In Italy, former Prime Minister Berlusconi is experiencing a resurgence in popularity which threatens the reforms implemented by the current government. Headwinds for further gains for the euro could weigh on the currency, limiting further upside as both political and economic factors must now work towards the same end goal.GBP – The pound had a mixed week last week, strengthening against the dollar but weakening against the EUR. In fact, it touched its 15 month low against the EUR last week before rebounding this morning on the political turmoil seen in Spain and Italy. The pound has weakened by 3.9% YTD, only trailing the JPY among the 10 developed market currencies as the market believes the Bank of England will hold rates steady at its February 7th policy meeting. This week also brings a report showing that is anticipated to show U.K. services contracted. This is in contrast to Germany, where they are expected to expand – which should result in more movement in EURGBP.JPY – The JPY reached a fresh high against USD in the European session before fading back down below 93.00. One of the important downsides to a weaker JPY was highlighted today when Tokyo Electric Power suggested that its 2013 outlook has been downgraded due to the rising cost of importing fuel. The yen fluctuated against the dollar after a record 12 straight weeks of declines as Prime Minister Shinzo Abe’s administration presses the central bank to ease monetary policy further to beat deflation. Finance Minister Taro Aso stated yesterday the government is attempting to imitate policies from his Depression‐era predecessor, Korekiyo Takahashi, who as finance minister in 1932 increased fiscal spending by 34% doubling bond issuance which the BoJ was instructed to underwrite. The weakening yen highlights that foreign investors are more concerned over the success of the government’s attempts to reflate the Japanese economy, while stable government bond yields highlight that domestic investors are not yet unduly concerned.Commodity Currencies – The commodity currencies are mixed against the dollar, as stronger US economic data last week showed signs of a steady recovery. The CAD is weaker against the USD despite better economic data. The Canadian employment, housing starts, and trade balance, due Friday, will provide for a better outlook on the currency. Market participants expect to see the CAD to trade between the 0.9949 to 0.9977 range until later this week, where more economic data will be released. The AUD is stronger against the dollar as the price of iron ore, Australia’s top export earner, increased 76% from the previous year’s lows. The AUD was also supported by solid manufacturing data in Asia, Europe, and the US, as commodity prices continued to rise. The NZD is also stronger against the dollar, jumping to a five year‐high, with the growing speculation that the interest rate will rise in the coming months. However, the NZD is faced with a downward risk as employment data is due later this week. Market participants are looking to see if the jobless rate will stay high in Q4, which will cause the NZD to knock back towards the 0.8350 range.RMB – The onshore yuan (CNY) hit its lowest level in over a month as the People’s Bank of China (PBOC) fixed the currency at 6.2860, thus erasing any 2013 gains, while the offshore yuan (CNH) came in at 6.2150. The move lower came as Asian currency markets focused on widespread monetary easing. In other news, China’s nonmanufacturing Purchasing Managers’ Index rose to 56.2 in January from 56.1 in December, indicating slight expansion in the Chinese economy. Look for PBOC to take advantage of a slow week, continuing to further restrain yuan appreciation, ahead of the Chinese Lunar New Year holiday which kicks off on February 11.