- USD gains sharply against its peers on renewed risk aversion;
- Greece shocked the market, and their Eurozone counterparts, by calling for a public referendum on the region's bailout plan;
- The JPY remains above 78 a day after the Japanese authorities sold an estimated 8T JPY;
- The Commodity Currencies have all but erased their October gains as investors' appetite for risk quickly fades and a global economic slowdown again appears at hand.

The US Dollar is sharply stronger this morning against all of its major counterparts, gaining most against the NOK, AUD, MXN and other commodity linked currencies. Including yesterday's rise, the dollar index has now gained nearly 4% from Friday's close as the initial euphoria over the Eurozone agreement to contain the region's debt crisis fades. With default again at the forefront of investors' minds, the dollar has found renewed support as the primary safe-haven currency. In years past, the CHF and JPY would also gain in times of increased risk aversion, but with the SNB and BoJ actively working to stem the gains in their currency, the dollar remains the last viable option. However, in light of weak economic data released this morning, an appreciating dollar puts increased pressure on the Fed to pursue another round of quantitative easing. ISM manufacturing fell short of expectations this morning, dropping to 50.8 versus a forecast of 52 and last month's reading of 51.6. While the gauge does remain in expansionary territory, after recent regional reports showing a pickup in manufacturing, economists had hoped it would translate into a rebounding sector. A gauge of prices paid also tumbled by far more than expected, registering a mere 41.0 versus an expected 55 and last month's reading of 56. While the US economy continues to struggle to gain traction, the USD will likely remain well supported in its role as a relatively safe investment with its status as the default global reserve currency still intact.

The EUR tumbled by more than a percent against the USD overnight, extending its three-day decline on fading optimism after last week's seemingly productive Eurozone summit. Late yesterday afternoon, Greek Prime Minister Papandreou shocked his Eurozone cohorts when he called for a referendum on the EU bailout deal for Greece. He told the Greek parliament that he trusts the citizens, believes in their judgment and believes in their decision. In a few weeks the EU agreement will be a new loan contract...we must spell out if we are accepting it or if we are rejecting it. After months of public protests to the mounting austerity measures imposed by the Greek government, a public vote on accepting Eurozone assistance could spell disaster. The developments have also unsettled investors across the region with the spread between French, Italian and Spanish 10-Yr bonds over German bunds widening to almost 3%, the widest level since 1996.

Sterling has also come under pressure this morning as a casualty of the flight to safety, but its fall has been less abrupt than that of the EUR. While the Greek referendum weighs on investors' overall risk appetite, it also calls into question what the effects of a default would be on British holders of Greek bonds. Nevertheless, the pound's drop has been somewhat softened by increased demand for British gilts as the government bonds are seen as a relatively safe investment. British GDP figures were also released slightly better than expected, showing growth of 0.5% versus an expected rise of 0.3%, with the gain led by expansion in the service and finance sectors.

The JPY consolidated in its new lower ranges this morning with investors not willing to test the Japanese authorities' threats of further rounds of currency market intervention. Initial reports suggest that the MoF and BoJ spent as much as 8T JPY ($102B), making the latest foray the largest unilateral intervention of the last 18-months. The government and central bank told reporters yesterday that they are ready to take successive actions until they are satisfied as part of their recent pledge to take any and all measure to weaken the currency. However, with a G20 summit just a week away, the BoJ's tactics will likely be hotly debated as inciting undue pressure on its trading partners. The increasingly active role that major central banks are playing in controlling their currencies also weakens the groups' calls for China to allow its currency to trade more freely.

The Commodity Currencies are all lower this morning, hurt by the recent wave of risk aversion. With the Eurozone deal apparently crumbling, raw good prices are deep in the red this morning as it threatens global growth. Oil fell by nearly 3% to $90/bbl, gold slipped to $1700/oz and copper tumbled 3.5% to $350/lb. The CAD is lower against its North American counterpart on the falling price of oil, Canada's main export, and as the faltering Eurozone deal saps demand for riskier assets. Similarly the AUD and NZD are both sharply lower as investors increase bets that slowing global growth will weigh heavily on the South Pacific economies. The RBA lowered interest rates overnight by a quarter percent, soon after a manufacturing report out of China fell short of expectations. The bank did signal a more neutral stance going forward, but should growth continue to slow and inflation remain in check, further rate cuts are to be expected in the coming months. The ZAR was one of the worst performers overnight, and has extended its two-day drop to more than 6% against the USD as investors shift capital out of higher-risk currencies en masse.


































10-Year Treasury Yield:




 $ 1,700.80

 $ (28.30)


 $ 352.05

 $ (11.10)

Crude Oil: 

 $ 90.79

 $ (2.37)





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.