The USD traded in a range of 1.4690 to 1.4747 to the EUR and 109.96 to 110.38 against the JPY overnight. Following what was a bad trading day for Asian stocks on Monday, US and European stocks were also generally lower, even as crude prices eased almost a dollar to $112.87 despite a strong start to the day. But our FX Risk Index continues to indicate that risk appetite remained at decent levels around -0.65. A combination of equity volatility trending lower and depreciating commodity prices remain the key drivers of that move. The US Housing Market Index, the only data to be released yesterday, failed to show any improvement, staying at the historical low of 16 in August, although the current sales and expected sales components rose slightly to 16 from 15 and 25 from 23 respectively. Small gains here are not likely to translate to very much given what clearly is a still-weak housing market in the US. But for now we think the market is still focused on the "re-coupling" broader global economic environment given the fresh growth concerns in Europe and the rest of the of G7 world. Such focus is likely to provide the USD a short-term underpinning especially against the EUR in our view.

Ahead today, we look for more housing data, from which starts and permits are expected to fall sharply to reverse the exaggerated gains in June (starts: UBSe 0.900 mln, consensus 0.960 mln; permits: UBSe 0.950 mln, consensus 0.970 mln). We also expect overall July PPI to remain elevated (consensus 0.6%, UBSe 0.5%), while core prices should remain modest (consensus & UBSe 0.2%). Dallas Fed President Fisher will speak at 1400 GMT.

As the market continues to fret over fading European growth momentum, today's ZEW survey, due at 0900 GMT, will be the focus. UBS economists expect the EC ZEW economic sentiment index to fall further to -64.3 in August from -63.7. Perhaps more importantly, we expect the German ZEW economic sentiment index to dip to -70.0 from -63.9 (consensus: -62.8) while the same survey is likely to show perception of current economic situation to ease to 10 from 17.0 (consensus: 13.0). UBS' expectations for these data are more pessimistic than the consensus, and an outcome close to our forecasts is likely to mean further near-term weakness in the EUR. Note also that the Bank of France' business sentiment index released yesterday showed sentiment deteriorated further to 92 (previous: 95) in July. According to the bank, industrial activity was stable in July, but is expected to decline in the coming months. In other news, the German Bundesbank was on the wires saying that risks to medium-term price stability have risen further, and that weaker growth will not automatically offset price pressures. However, and as investors remain focused on growth, the comments had only little impact on the single currency. Overall the most recent data releases confirm a trend of weakening growth conditions, which we expect to remain intact up ahead. This will likely keep the EUR under pressure.

At 0.7% y/y (previous: 7.4% y/y, cons. 3.2% y/y) Swiss retail sales growth slowed more than expected, and after seasonal adjustment sales growth came in at 1.8% y/y (previous: 1.9% y/y), and 0.2% m/m (previous 0.2%). Adjusted for shopping days, retail sales growth for June reached 4.7% y/y, after 7.4% y/y in May. As the monthly retail sales release is subject to heightened volatility, we are cautious in putting to much weight on the figure. However the latest reading on retail sales still suggest that consumption remains robust, and the still tight labour market is the main driver of that resilience. However, going forward we expect increasing pressure on domestic demand, and while key trading partners? economies are under considerable stress external demand will also face increasing stress. Overall the most recent development indicates a decreasing probability for the SNB to tighten rates up ahead, and such prospects will keep the franc under pressure for now, especially versus the USD.