v USD pares recent gains as risk aversion wanes; housing starts and industrial production both miss forecasts at 5.8% and 0.0% respectively;

v EUR rebounds back to the middle of its well-worn ranges after German investor confidence surged to a two-year high and a Spanish bond auction was well subscribed;

v Commodity Currencies are outperforming their peers with the ZAR, CAD and MXN leading the pack with 1.8%, 1.2% and 1% gains against the USD respectively.

The USD is sharply lower this morning against its higher-yielding counterparts as fears of a global slowdown and imminent collapse in Europe abate, at least for the time being. Data released in the US this morning fell short of expectations with housing starts missing the mark by nearly 50k at 654k, a 5.8% drop from last month. Meanwhile industrial production stalled with no gain now for two straight months despite expectations of a 0.3% rise. Nevertheless, strong results on a German confidence report and renewed risk appetite has outweighed the disappointing data as investors look to assume higher-yielding, but riskier positions. Dovish Fed commentary is also weighing on the dollar this morning with a paper from the San Francisco Fed stating that any forecast that assumes the recovery from the Great Recession will resemble previous post-WWII recoveries runs the risk of overstating future economic growth, lending activity, interest rates, and inflation. The remarks highlight the Fed's commitment to low interest rates and the central bank's willingness to support the economy should it be deemed necessary.

The EUR continued its push higher against many of its major counterparts this morning after slipping to a three-month low at the start of Monday's European trading session. 1.30 remains a key level of support for the common currency, but its broader range of 1.30 - 1.35 against the USD has remained intact as it has for much of 2012. The surge higher came as a gauge of German investor confidence unexpectedly jumped to a two-year best, signaling that the Eurozone's largest economy will likely continue to perform well. However, the periphery remains troubled to say the least with Spanish yields remaining uncomfortably high despite strong demand at a recent bond auction. Moreover, investors remain skeptical of the recent support for the common currency as regional policymakers make it clear that they are in favor of a weaker EUR. French President Sarkozy told reporters that a weaker currency is good news for Europe because of the boost it gives European exports.

The GBP is mixed this morning, gaining against the USD while falling against the EUR. The rise against the dollar comes after British CPI unexpectedly rose to 3.5% from 3.4% in the previous reading. Core inflation also ticked higher to 2.5% versus the 2.3% that was expected. With inflation again on the rise even before higher summer gas prices kick into full effect, investors are paring bets that the BoE will increase their asset purchase program in the coming months. British policymakers remain rather dovish in tone, but improving economic fundamentals and rising inflation may signal the end of the current monetary easing cycle.

The JPY pared some of its recent gains this morning, but remains at elevated levels. The decline in demand for the yen comes as risk aversion wanes following the first upwards revision to the IMF's forecast for global growth in more than a year. Easing currency volatility has also sapped demand for the yen's perceived safety as reduced risk makes investing in higher-yielding currencies more attractive.

The Commodity Currencies are outperforming their peers this morning on resurgent risk demand and higher raw good prices. Oil pushed back towards $105/bbl, gold rose to $1650/oz and copper gained to $365/lb. The CAD was one of the best performing currencies overnight, gaining by more than a percent against the USD after the BoC hinted at higher interest rates. The Bank left monetary policy on hold at present, but mentioned that removing stimulus may become appropriate in the coming months. The MXN also jumped higher on the rise in risk assumption and despite the relatively disappointing economic data out of the US, the primary destination for Mexican exports. The AUD is also higher on the rebound in risk-taking, but gains have been limited by rather dovish minutes from the RBA's last meeting, which suggested that the central bank is ready to cut interest rates should an inflation report due next week not present any major surprises.





































10-Year Treasury Yield:





 $ 1.10



 $ 1.55

Crude Oil: 


 $ 1.57





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.