With little economic data out today, the US dollar is largely driven by the strength in the equity and commodity markets.  Equities are slightly lower while commodities and bond yields trading lower today.  The US dollar is trading mixed and is modestly higher against the EUR, AUD, NZD but lower against CAD and GBP.  According to the VIX index, volatility dropped off over the last few trading sessions while risk aversion remains steady.  Ahead tomorrow, initial jobless claims is expected to drop slightly mid-August to 478k from 484k.  Leading indicators for July is expected to rise to 0.1% from the previous -0.2%.

The euro held flat against the dollar despite a surprising rise in construction output for June to 3.1% from the previous -6.3%.  The euro has dropped off significantly since August 9 due mainly to corrective moves from earlier overbought levels and risk aversion flows.  Should risk aversion remain in the forefront, the euro will likely fall below support level of 1.2770.

The British pound pared gains following this morning's rally after the hawkish tone of the Bank of England minutes.  The Bank Monetary Policy Committee decided to keep interest rates steady at 0.50% with the exception of Andrew Sentence maintaining his stance in favor of a 25bps interest rate hike.  Minutes noted that a range of survey-based measures of activity had weakened.  However, Sentence believed that there were evidence of strong Q2 strength based on rising prices.  UK retail sales will be released tomorrow and should data disappoint, the GBP/USD may fall below the support level of 1.5500.

The Canadian dollar continued its rally today following BHP Billiton's takeover bid for Potash - Canadian fertilizer company.  Potash rejected the recent bid.  However, political pressure on Prime Minister Harper will likely ensure the transaction and prompt BHP to increase its offer.  The deal was valued for $38.5 billion and should it go through, the loonie will likely appreciate past the 1.0300 support level against the greenback.

The Japanese yen rose against the majors today as Japan's officials fail to make any statements or express concerns of the strengthening yen.  Tomorrow's industry activity index is expected to decline to -0.3% for June from previous 0.2% gain.  Should expectation hold true, there will be greater pressure for the Bank of Japan to take action on the appreciating yen.

The Australian and New Zealand dollars dropped following increased risk aversion flows amid speculation that Japan's officials will not intervene to weaken the yen.  The Aussie also declined after government reports indicated that skilled vacancies fell in August and wage growth slowed during Q2 this year.  Weak data adds to investor's assumptions that the nation's central bank will leave interest rates unchanged for the next year.
 
Indications of Overnight rates:
EUR/USD

1.2864

USD/JPY

85.34

GBP/USD

1.5594

USD/CAD

1.0305

USD/MXN

12.5950

USD/CHF

1.0406

AUD/USD

0.8986

NZD/USD

0.7150

 
10-Year Treasury Note Yield:  2.6102%
Dow Jones Industrial Average:  10376.79 - 28.30%

This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.