Risk aversion remain strong in the market today, therefore boosting the safe-haven US dollar and sinking US equities.  With little economic data, the dollar is trading largely on risk sentiment set by yesterday's disappointing Philly Fed and jobless claims report.  Weaker fundamentals may temporarily support the dollar due to risk aversion flows.  However, should the fundamentals continue to remain negative, the dollar may be pressured to fall in the long run.

The euro dropped to a five-week low after ECB's council member Axel Weber commented that the region will need unlimited lending from the central bank through the year end.  Weber's comments suggests that despite recent optimistic economic data releases, the region's economy will need further monetary policy support.  The euro fell over 1% against the greenback, surpassing the 50-day moving average to the low of the day at 1.2673.  The next support level is 1.2600.

The British pound extended its decline against the US dollar today as concerns of a faltering global economic recovery boosted safe-haven currencies.  Despite positive UK retail sales figures, the sterling continued to be pressured by the probability of further austerity measures implemented by the Bank of England.  Ahead next week, GDP for Q2 will be released with survey figures anticipate to be unchanged at 1.6%. 

The Canadian dollar fell to a one-month low against the dollar following a weaker than expected consumer price index.  The index missed the mark by 0.1%, at 1.8% rise vs. 1.0% previous and 1.9% eyed.   Consequently with a lower inflation reading, economists anticipate the Bank of Canada will not be increasing interest rates in the next September meeting.  As a commodity linked currency, the loonie is also pressured by weaker commodity prices, specifically crude oil.  Crude oil, Canada's largest export, dropped -0.59, currently trading at 73.84/bbl.  USD/CAD moved above the 1.0500 level today, but has since retraced.  Should the pair trade above 1.0500 next week, we should see a test to the next resistance level of 1.0650.

The Japanese yen appreciated past the 85.00 per dollar support level yesterday, however rebounded today on a stronger dollar due to weaker US equities.  In recent news, Japanese officials remained unwilling to intervene in the currency market and unchanged on Japan's QE program.  Should risk aversion flows remain strong, the yen will likely appreciate to 84.00 levels next week.  Japan's merchandise trade balance is scheduled to be released on Tuesday with an expected fall to 466.3B vs. the previous 686.4B.

The Australian and New Zealand dollars fell against the majors as risk aversion flowed back into the market, dampening the appetite for high-yielding currencies.  RBA's Deputy Governor Battellino commented today that central bank is very pleased with the current interest rate levels, suggesting that the nation's growth is stable and there will likely be no interest rate change for the rest of the year.   Furthermore, investors are keen to devote to the Aussie before tomorrow's election.  Should the election result in a hung parliament, the Australian dollar may run past the  0.8800 support level against the dollar.

Indications of Overnight rates:

EUR/USD

1.2681

USD/JPY

85.76

GBP/USD

1.5501

USD/CAD

1.0507

USD/MXN

12.7655

USD/CHF

1.0370

AUD/USD

0.8875

NZD/USD

0.7021

10-Year Treasury Note Yield:  2.5601%

Dow Jones Industrial Average:  10166.01 - 104.82%

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.