The US Dollar is mixed as one of the most tumultuous weeks on record comes to a close. The main themes remain the same, and another up day on Wall Street is seeing capital shift out of the "safe-haven" USD, JPY and CHF, and back into riskier, but higher yielding, currencies like the SEK, NOK, and ZAR. However, the moves have been modest after such a rollercoaster ride of a week. Investors are digesting mixed economic data this morning that showed retail sales gaining as anticipated, but consumer confidence unexpectedly plummeting to a three-decade low. The data appears to be contradictory, but retail activity is a lagging indicator, and consumer sentiment tends to be more of a harbinger of things to come. As such, a weak labor market, rising inflation, extreme stock market volatility, and a contentious political atmosphere threaten to weigh on household spending. The U. of Michigan index of consumer expectations for six months from now, which most closely projects the direction of consumer spending, tumbled to 45.7 from 56.0 in the prior month. Nevertheless, the dollar will likely remain within its recent ranges, with its overall direction tracking that of the stock market.

The EUR consolidated within its recent ranges overnight despite a worsening debt outlook for the Eurozone. With fears that the debt contagion that has affected the region's periphery economies is threatening the core economies such as Spain, Italy and even France, credit conditions have begun to tighten. However, unlike in the past three years where funding constraints led to losses in the common currency, the EUR has remained relatively well supported over the past month. Some of this bid has been derived as the EUR has become on of the main alternative currencies to the USD after the US's credit rating was downgraded. Its yield advantage over the dollar as helped, as well as an increased USD cash holdings at the Fed by European banks, up to $837B from $50B in '07. However, should credit conditions tighten further, the EUR will likely come under renewed pressure in the coming weeks and months.

The CHF extended its recent decline overnight, falling by a percent or more against all 16 of its most actively traded peers. Some of the move lower has been prompted by two days of gains on Wall St. after large declines earlier in the week, but it has been exaggerated to a great extent after the SNB floated the idea of a temporary peg to the EUR. The execution of such a peg remains an uncertainty, but the implications of even the attempt to peg the best G10 performer have weighed heavily. However, with the sharp move lower, the relative attractiveness of the franc may lure in investors looking for a safer asset than stocks or higher-yielding currencies.

The JPY traded in a tight range overnight, but remains near its all-time high despite a continued recovery in the stock market. However, while stock prices are recovering after this week's steep slide, investors remain apprehensive to shift capital into higher-yielding assets after an index of US consumer confidence tumbled to the lowest levels since 1980. In the near term, the yen will remain well supported towards the top of its recent ranges, but should it make another run at the all-time high, the threat of another round of BoJ intervention will increase substantially.

The Commodity Currencies are all lower this morning despite recovering stocks and commodities. Oil pushed higher to $86/bbl, copper was up to $401/lb and consumables from wheat to coffee gained, but an abysmal consumer confidence report out of the US is overshadowing the gains. The CAD is lower despite the rising price of oil, Canada's main export, after the confidence report out of the US, the nation's main trading partner. With US consumers potentially buying less exported Canadian goods in the coming months, the Canadian economy may too be entering a "soft patch." The AUD and NZD both consolidated overnight near their 200-day moving averages as Aussie and kiwi bulls largely remain sidelined despite rising stock and commodity prices. The commodity currencies will benefit from recovering financial markets today, but they will be relegated to their recent ranges as the outlook for demand for their exported goods remains bleak at best.

08/12/2011

CURRENT

CHANGE FROM CLOSE

EUR/USD

1.4240

0.01%

USD/JPY

76.75

-0.13%

GBP/USD

1.6295

-0.31%

USD/CAD

0.9899

0.55%

USD/MXN

12.3055

0.25%

USD/CHF

0.7701

1.12%

AUD/USD

1.0325

0.24%

NZD/USD

0.8285

0.42%

USD/ZAR

7.1855

0.09%

USD/CNY

6.3891

-0.07%

10-Year Treasury Yield:

2.2495%

-0.0904

Gold:  

 $ 1,731.80

 $ (17.00)

Copper:  

 $ 401.45

 $ 1.00

Crude Oil: 

 $ 86.25

 $ 0.54

DJIA:

  11,227.13

83.33

 

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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..