USD – The dollar is headed into the weekend higher against the majority of its counterparts as the risk on trade from earlier in the week quickly fades.  US stock markets are lower as quarterly revenues at companies from Microsoft to McDonald’s fall short of expectations.  Meanwhile, investors are again concerned with Europe as leaders failed to address the pressing issues in Spain.  Consequently, the dollar is well supported in its role as the default “safe-haven” asset with the general outperformance of the US economy providing further impetus for holding dollars. Domestically, existing home sales registered in line with expectations at 4.75M, but fell from last month’s 4.83M.  However, the figure is not inherently negative as a drop in inventories largely accounted for the decline in sales.  The number is further discounted after positive data earlier this week showed a surprising rebound in the home building industry with ground being broken on new houses at the fastest pace in more than four years.  Home values are also on the rise with the median price jumping to the most since 2005 near the peak of the housing bubble. While this week’s data would normally lead to a bit of risk taking, and consequently dollar weakness, dour earnings on Wall St. and continued fears regarding Europe will keep the dollar well supported in the near term. 

EUR – The euro fell back within its recent ranges overnight after European leaders failed to even discuss Spain at a two-day summit in Brussels.  Meanwhile, Spanish PM Rajoy told reporters that he “doesn’t feel under pressure to seek aid” from the ECB or EU.  In the lead up to the summit, anticipation had reached a near fever pitch that Spain would soon be requesting a sovereign bailout.  Both Moody’s and S&P stopped short of cutting the nation’s debt rating to junk status largely on expectations that the ECB’s Outright Monetary Transactions program would soon step in and buy Spanish bonds.  Finally, with a report yesterday showing that Spanish banks may in fact require more of the €100B from an ECB bank recapitalization program than previously thought, investors appeared confident that action would be forthcoming.  The lack of even a discussion, and Rajoy’s continued anti-bailout stance, are thus taking a bit of the wind out of the EUR’s sails.  Nevertheless, declines have been limited as it appears Eurozone leaders did make progress towards establishing a regional bank supervisor by the end of 2012.  The system will see the ECB as the top supervisor by the start of ‘13 with a network of regional regulators overseeing all 6,000+ Eurozone banks by ‘14. 

GBP - Sterling extended its fall against the dollar overnight, but is higher versus the euro for the first time in four-days.  The move up against the EUR came after the British government deficit unexpectedly narrowed to £12.8B from last month’s £14.4B, with the improvement largely coming from an unanticipated uptick in tax receipts.  Nevertheless, the pound is headed for a fourth-straight weekly decline against the dollar as the risk-off trade takes its toll.

JPY – The yen continued to fall overnight, slipping to its lowest level against the USD since August.  The move comes as data out of the US improves, worries over the Eurozone ease and M&A related activity directs capital flows out of Japan.  On the last point, the yen’s relative strength makes foreign investment historically attractive, with a clear example being Softbank’s recent $20.1B bid for a majority stake in US cell provider Sprint.  However, declines will likely be slow and steady as the improved economic picture takes some of the pressure off of the BoJ to intervene in currency markets or ease policy.

Commodity Currencies – The commodity currencies are generally lower this morning as stocks and raw goods limp into the weekend.  Commodities are in the red with oil falling to $91/bbl, gold dropping to $1735/oz and copper slipping 2% to $366/lb.  The CAD’s recent gains were largely erased this morning after a weaker-than-expected reading of Canadian CPI leads speculation that the BoC will deemphasize a possible rate hike before year end.  Similarly, the AUD has pared much of its recent gains, but still remains higher for the week as the global economic outlook improves modestly.  While falling commodity prices suggest further declines for the Aussie, data this week that showed an unexpected pick up in Chinese economic activity is proving to be supportive.  The ZAR was the best performer with employees at one of the nation’s largest gold mines agreeing to go back to work.

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