It appears that last week's gloomier U.S. jobs picture has provided a wake-up call for those dreaming about a global recovery and a return to business as usual. The Japanese yen and American dollar are both dusting themselves down as investors appear to be building up demand for their services as safe havens during economic crisis. The dollar reached $1.3900 against the euro earlier while the yen is stronger against all major currencies and has risen to ¥94.80 against the dollar.

07-06-2009 12:40 PM EDTCurrent PricePut Open IntWeekly Change in Put Open IntCall Open IntWeekly Change in Call Open IntPut/Call Open Int Ratio30-day Historical Vol (%)Implied Volatility (%)
Euro  Euro1.392712,24985615,2861660.813.812.5
Yen  Yen95.115058,2776879,5262,2466.113.013.8
Pound  Pound1.621912,7032398,820561.416.413.9
Canada  Canada0.86024,3668954,022881.115.214.6
Aussie  Aussie0.79144,142-721,2111,1790.221.317.7
Swiss  Swiss1.08831,52001,751-30.913.712.2

Despite calls at the G8 meeting in Italy for less reliance on the dollar, currency traders are fully briefed on international leaders' desires to put in place a dollar alternative some day. The operative 'some day' clause is a dollar positive in the current environment as the market starts to grasp the concept that any alternative method of holding international reserves can't conceivably be adopted overnight. And so for now the dollar remains safe, and as such has a significant following in the forex arena. The French, Indian and Russian calls over the weekend widely reported in financial media, have done little to dent dealers' appetite for the dollar.

The vogue topic during the second quarter was the gradual thawing in the icy grip of the severe recession. As the third quarter begins, it's the global equity markets that continue to melt instead as investors increasingly sense that the economic recovery is certainly losing momentum. An ugly loss for one of Germany's financial power houses served up a reminder that earlier exposure to American sub prime has left a dirty trail behind it. Commodity-linked companies around the world are losing value once again today and as we survey the activity of recent days, we note that Germany's Dax index has accumulated losses of 10% since it reached its recent peak. While for now that simply qualifies merely as a correction, one worries that something more sinister may be afoot.

The euro is in no position to benefit from a second wave of an economic slump. It gave the appearance of a reluctant victor after round one with the dollar, because investors fear that the fiscal mess left behind by the U.S. administration in dealing with the meltdown would weaken the dollar in the long haul. A deepening recession would be an open invitation for the ECB to firstly reduce interest rates further than they have done, but would also open the door to expanding its own covered bond purchase plan. That's going to cause a political rift in the Eurozone, with Germany's Chancellor Angela Merkel already having sounded off against the ECB for bowing to international pressures. Little does she know it yet, but she might be taking a bow of her own before the summer is over.

Signs of a weakening recovery in the United Kingdom have given credence to a Sunday Times article in which the journal predicts the government via the Bank of England will step up its asset purchase program by a further £40 billion or one third of its current £125 billion in planned purchases. The pound responded poorly and slipped to $1.60 against the dollar as investors either fretted over the prospects for a weaker fiscal position or simply quit their sterling holdings for fears over slower growth.

The Aussie has found its way back to 79 U.S. cents having peaked at 82.25 two weeks ago. Commodity prices have been in pretty much freefall lately with crude oil in particular leading the way down as it responds to prospects for weaker global demand ahead. And of course a rising dollar doesn't help the plight of commodities, which tend to track the dollar's fortunes inversely. The Canadian dollar is little changed currently and appears to have got much of its negativity out of the way over the last week as investors dumped the loonie for fears that the Bank of Canada might intervene. The Canadian dollar today buys 86 U.S. cents.