World Market Update - North America

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World Market Update December 31, 2010 » A North American Market Perspective by Western Union

Dollar on the Defensive to End the Year Market Highlights: Euro Continues Rebound China in Focus for 2011 Loonie Ends the Year on a Strong Note Euro Continues Rebound The EUR climbed to a two week high against the USD overnight as traders readjusted positions going into the new year and short positions were stopped out.  The common currency printed a high just below the 1.34 figure which is a nice move after starting the week in the low 1.30 range, although currency movements at this time of year can be taken with a grain of salt due to the reduced levels of liquidity.  Intraday moves still remain fairly erratic in most major currencies as most traders would prefer to wait until next week when business returns to normal and trading conditions improve.  Coming into the new year, one of the big unknowns in FX markets will continue to be the European debt situation as investors and traders try to assess the health of the EU and the more heavily indebted peripheral economies.  Up until now the EU has been more reactionary to the crisis and haven't been able to come up with a concrete plan on how to deal with another bailout should it happen.  The market seems to want the EU to be proactive and provide some sort of fund that can be used in the event of another sovereign bailout, and above all the market wants to know how big this fund will be.  Until there is some more clarity on the issue it is hard to believe that the EUR will continue to make substantial gains against most major currencies as the risks to the downside are just too great. China in Focus for 2011 China has been very much in focus in 2010 and 2011 should be no different, as the world's most populous nation continues to throw their substantial economic weight around.  The CNY finished at its strongest ever level and was up 3.4% for the year, helping to take some political pressure off the Chinese administration from the international community regarding currency manipulation.  Economic data from China remains very positive on many fronts and GDP continues to grow at a torrid pace, forcing the People's Bank of China to resort to several different methods of restricting the money supply in order to put the brakes on their red hot economy.  They have done everything short of raising the benchmark interest rate but there is rampant speculation across the globe that a rate hike is inevitable, and when it comes it should be a big negative for risky assets.  China is now seen as one of the main engines for global growth, so if they get aggressive on raising interest rates in 2011 it could make it a tough year for global asset markets and currencies alike, especially commodity linked currencies like the Canadian and Australian dollars. Loonie Ends the Year on a Strong Note  The Canadian dollar continues to trade close to parity with the USD coming into year end, although it has traded in a very tight range all week.  The loonie has traded better than par against the USD several times this year, but has lacked the conviction to make a substantial move lower.  The CAD has only had a couple of daily closes better than parity for the year, giving proof that both speculators and corporate hedgers believe this level is a good place to be selling the loonie.  The run up in commodity prices has obviously helped the CAD, but Canada cannot live by oil alone and it will take more than just a high price of crude to keep the loonie at these levels on a sustainable basis.  The Bank of Canada is seemingly on hold for the next few months at least, and global growth is not looking too rosy for 2011 so the prospects for further gains are not great.  The US is our biggest trading partner so until things improve south of the border we can expect the same rangebound trading for the near future in USDCAD. On behalf of the Western Union Business Solutions team, I would like to extend our sincere thanks to all of our readers this year.  We appreciate your patronage and all the great questions and discussions you bring to us.  We wish you and yours a happy, healthy and prosperous 2011.  See you next year!   Happy Holidays from Western Union Business Solutions There will be no World Market Update on January 3rd. On behalf of Western Union Business Solutions, we wish you a safe and happy holiday and a prosperous 2011. Western Union Business Solutions Newsletter Team By Brendan McGrath, Senior FX Trader Send a message Contact us today. Email or call 1.888.987.7612 517 Fort St. Victoria, BC V8W 1E7

Western Union Business Solutions has based the opinions expressed herein on information generally available to the public. Western Union Business Solutions makes no warranty concerning the accuracy of this information and specifically disclaims any liability for trading decisions based on the opinions expressed and information contained herein. Such information and opinions are for general information only and are not intended to present advice with respect to matters reviewed and commented upon.

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