USD lower against most major counterparts as risk appetite rebounds despite stocks beginning the day in the red;

EUR falls to a new all-time low against the JPY, below 100, as investors fear the Eurozone's debt crisis will weigh on economic growth in 2012;

JPY heads into the end of the year well supported after a report showed the BoJ did not sell any JPY in the month of December.  

The USD is headed towards a mixed close to a volatile year in currency markets with thin liquidity exacerbating wide swings.  The dollar index, which tracks the USD's performance against a basket of six major currencies, has traded in a rather volatile 10% range this year.  However, despite sometimes violent swings, the DXY is ending within 1% from where it began the year.  Just as many of the stories that stole headlines in 2011 (i.e. European debt, a slowing of global economic activity, political polarization within the US, austerity, protests, etc.) will carry over into 2012, so too will the currency market's broad trends.  The dollar looks poised to strengthen against the EUR in the early part of the year, but with the upside ultimately limited with no viable direct replacement for the common currency.  Despite a weak performance at the end of the 2011, developing market currencies will likely continue to garner demand as relatively robust economic growth proves attractive.  Finally, despite gaining momentum in G10 exports, and continued liberalization of trade and currency policies in emerging markets, most importantly China, political posturing over global trade imbalances will persist.  While talk of the dollar's demise has permeated global rumor mills for nearly half a decade, the dollar's role as an international trade settlement currency, as the default global reserve, and as a safe-haven asset remain well intact heading into 2012. 

The EUR remains within its ranges this morning, 0.5% to either side of the key 1.30 handle.  While there is no new evidence supportive of the common currency, the few market participants yet to leave for holiday are closing out shorts and booking profits on yesterday's push towards the lowest level of the year against a number of its counterparts.  While its drop against the dollar has garnered headline attention, the EUR reached a fresh all-time low against the safe-haven JPY overnight, breaking below the key 100.00 barrier.  The move lower comes after a week of relative stability and on renewed fears that the region's debt crisis will weigh on economic growth.  The EUR is now headed for its second straight year of declines, the first such streak in the currency's existence. 

The GBP is sharply higher this morning against both the USD and EUR as British government assets continue to garner significant safe-haven demand.  The yield on 10-Yr gilts dropped to a fresh low at 1.932% as investors increasingly opt for the safety of British assets over the perceived risk of those of mainland Europe.  Nevertheless, the UK economy continues to struggle as reflected in a weak house price report released yesterday, showing that prices dropped by 0.2% versus an expected flat reading.  Home prices are now up just 1% year over year, down from +1.6% in the previous reading.

The JPY gained against all of its major counterparts this morning, largely supported by the drop in the EURJPY cross.  A report that showed the BoJ refrained from selling any JPY in December has also supported the safe-haven Japanese currency as investors interpret the report as a sign that Japanese officials are less likely to intervene in the near term.  However, the yen's upside will likely be limited as soon as next week as Japanese officials will likely become more outspoken about the yen's strength should it continue to appreciate.

The Commodity Currencies are all higher this morning, led by the ZAR and AUD as a modest easing in risk aversion prompts investors to seek higher yields.  Raw goods are mixed with oil falling to $99/bbl, gold gaining to $1575/oz and copper rising to $343/lb.  The CAD is modestly higher this morning, supported by rising global equities, but limited by the falling price of oil, Canada's main export.  The AUD is sharply higher this morning, supported by Australia's G10-leading interest rates.  Despite trading in a broad 14% range in 2011, the Aussie is set to end the year within 0.25% of where it began.  The ZAR is similarly higher this morning, but remains the third worst performing currency of the year, tumbling nearly 22% against the USD in the twelve month period.

12/30/2011

CURRENT

CHANGE FROM CLOSE

EUR/USD

1.2985

-0.15%

USD/JPY

77.01

-0.82%

GBP/USD

1.5535

-0.77%

USD/CAD

1.0182

-0.17%

USD/MXN

13.9349

-0.44%

USD/CHF

0.9352

-0.53%

AUD/USD

1.0250

-1.10%

NZD/USD

0.7789

-0.98%

USD/ZAR

8.0723

-1.27%

USD/SEK

6.8657

-0.41%

USD/CNY

6.2949

-0.38%

10-Year Treasury Yield:  

1.8693%

-0.0296

Gold:  

 $  1,576.20

 $ 35.20

Copper:  

 $  343.70

 $  5.55

Crude Oil: 

 $  99.17

 $ (0.48)

DJIA:  

12,264.98

-22.06

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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.