v EUR falls as German retail sales unexpectedly decline by 1.6%; ISDA concludes that ECB rollover of Greek debt will not trigger credit default swaps;

v JPY continues to weaken after CPI contracted for a fourth straight month prompting increased bets of further rounds of monetary easing from the BoJ;

v Dollar index headed into the weekend 1.75% higher ahead of next week's much anticipated nonfarm payrolls and unemployment reports.

The USD is headed into the weekend stronger against all but two of its most actively traded counterparts as investors remain largely sidelined before next week's crowded schedule of economic releases. The dollar has also extended its recent rebound after Fed Chairman Bernanke diffused growing expectations of a third round of quantitative easing in his testimony before Congress earlier this week. However, national data this week that showed an unexpected slowing in manufacturing, consumption and income levels is keeping investors from embracing the notion that the recovery is gaining momentum. Meanwhile, European officials added a flood of liquidity to the European market through its LTRO program earlier this week. The sudden reversal in which the Fed looks like the more reactive rather than proactive central bank is beginning to provide support for the dollar. With little economic data due today, investors are looking forward to next week's labor market, trade and inventories reports.

The EUR looks to end the week more than 2% off its recent highs as concerns over Greek debt are again coming to a head. Yesterday, the International Swaps & Derivatives Association (ISDA) ruled that credit default swaps would not be triggered by the ECB's recent exchange of expiring Greek bonds for new ones, but without the so-called haircut that will be imposed on private sector investors. However, ISDA will now have to determine whether retroactive collective action clauses being imposed by the Greek government to force investors to take deeper cuts and participate in a broader swap of bonds will trigger CDS. Meanwhile, investor confidence in the Eurozone was further undermined after German retail sales fell short of expectations, contracting by 1.6% from the previous reading. While the ECB's LTRO program has reduced the short-term funding concerns for many of the Eurozone's struggling member nations, signs that the underlying economic deficiencies continue to weigh on investor appetite for Eurozone assets, including the common currency.

The GBP is mixed this morning, dropping sharply against the USD while grinding higher against the EUR. Demand for the sterling fell after the disappointing German retail sales report weighed on assets with strong ties to the Eurozone. With the bulk of British exports headed for mainland Europe, a pullback in sales in the region's largest economy could weigh on the already fragile British economy. While recent positive domestic data had prompted investors to pare bets that the UK would slip back into recession, this morning's report could quickly alter that outlook.

The JPY continued to weaken this morning after inflation data showed prices falling for a fourth-consecutive month. With the volatile food and energy components stripped out, Japanese CPI fell by 0.1% last month. With the BoJ recently instituting an inflation target of +1%, the evidence of deflation suggests that the central bank may ease monetary policy further in the coming months.

The Commodity Currencies are generally lower as investors pare riskier bets and as raw good prices fall. Oil pulled back from recent highs to $107.50/bbl, gold fell to $1717/oz and copper slipped to $391/lb on a weakened outlook for demand. The CAD fell for the first time in five days as Canadian GDP slowed significantly in the last quarter of 2011. Economic growth slowed from 4.2% to 1.8% as weaker foreign trade offset gains in Canadian consumer and business spending. Nevertheless, the loonie remains well supported below parity with its US counterpart as the price of oil, Canada's primary export, pushes higher. The AUD is headed for its biggest five-day gain in more than four weeks on increased speculation that the RBA will keep interest rates on hold for the rest of the year.

03/02/2012

CURRENT

CHANGE FROM CLOSE

EUR/USD

1.3203

0.85%

USD/JPY

81.58

0.56%

GBP/USD

1.5855

0.66%

USD/CAD

0.9880

0.25%

USD/MXN

12.7661

0.33%

USD/CHF

0.9132

0.72%

AUD/USD

1.0748

0.57%

NZD/USD

0.8330

0.78%

USD/ZAR

7.5199

1.06%

USD/SEK

6.6882

0.95%

USD/CNY

6.2982

-0.03%

10-Year Treasury Yield:

1.9843%

-0.0418

Gold:  

 $ 1,715.00

 $ (7.10)

Copper:  

 $ 390.55

 $ (1.90)

Crude Oil: 

 $ 107.32

 $ (1.55)

DJIA:

                         12,969.10

-10.75

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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.