Credit Crisis Spreads in Europe, Global Stocks Tumble Boosting Risk Aversion

Crisis Spreads in Europe, Increasing Risk Aversion, Global Stocks Fall

European governments rushed to shore up their faltering banks as the credit crunch continued to wreak havoc on financial institutions. Over the weekend, top EU leaders failed to hammer out a coordinated approach to the crisis. Germany and Belgium guaranteed to back bank deposits, and there were further bailouts overnight. The individual actions taken by EU nations did not ease concerns and stocks tumbled as a result.

EUR/JPY - Euro Falls the Most Since Debut vs Yen

Stocks in Asia, Europe and the US were sharply down, as fears of a global slowdown intensified. The Euro-Yen pair was down as much as 800 pips from its gapped open, as panic selling gripped the forex markets. The Yen was the big winner today as carry trade continued to falter. The Pan-European Stoxx 600 index was down nearly 8% with banks and other financial institutions leading the downfall. It was the worse one-day sell off ever. Mining firms also saw strong selling as investors backed away from commodities on fears of a global recession.

EUR/USD - Euro Dips to 14-Month Low

The Euro was lower against the Dollar as well, falling below 1.35 for the first time since August 2007. With the European heads of state unable to coordinate policy, and being forced to bailout firms, investors are moving their assets to the relative safety of the Dollar. Today's fall amounted to a 250 pip move, and is the 6th session in a row that the Euro has weakened against the greenback.

GBP/JPY - Increased Risk Aversion Plunges Pair 1,000 Pips

The Pound-Yen fell more than a 1,000 pips from its open near the 186 level to test the 174 level in NY trading. After a fall in the Asian session, the pair consolidated only to fall another 600 pips as the NY session began.

USD/JPY - Dow Jones Dips 500 Points, Dollar-Yen Tests 100 Level

By 3:00PM EST, the Dow Jones index plunged more than 700 points to break below the 10,000 mark for the first time in 4 years. The Dollar-Yen pair, fell to test near the 100 level, from its open near 105, a change of 500 pips. Oil prices fell below $90 a barrel as investors bet demand will be low in the coming economic environment.

USD/CAD - Greenback Hits 1.10 vs Loonie as Oil Prices Slide

The decline in commodity and oil prices hurt the Australian, New Zealand and Canadian Dollars. The US Dollar-Canadian Dollar pair rose above 1.10 for the first time since May 2007 as the pair rallied 230 pips in NY trading. The Australian Dollar fell to its lowest level against the greenback since April 2006.

Tonight's Releases

Though the markets are focused on risk, and not fundamentals, there are key events coming up overnight, mainly the Reserve Bank of Australia is scheduled to cut rates overnight. The Bank of Japan finishes its meeting as well, though it is expected to hold. Overnight we get manufacturing production and housing prices data from the UK.

Tomorrow's Releases

Tomorrow, both ECB President Trichet and Fed Chairman Bernanke are scheduled to give talks and the US releases its FOMC Meeting Minutes.

Capital Market Services, L.L.C.
www.cmsfx.com

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