Dollar Slides as Concern Shifts from Financials to Govt. Balance Sheet

EurUsd rose over 200 pips to the high 1.46 level, while the UsdJpy trades slightly lower at the mid 106 price area. The GbpUsd continues to build strength, up over 130 pips at the mid range of 1.84. Commodities carried last week's gains into today's trading, with oil up at 109 and gold at 894, testing 900 as a point of resistance. Equity markets are trading lower in the US and Europe, with the Dow down 200pts, regional and mid-sized banks are amongst the largest losers in stock trading as the outlook for their current market share may deteriorate with GS and MS as competitors. Bond yields indicate a bit of easing in regards to risk aversion, with the 2, 10, and 30yr wider across the curve. The 10yr yield is wider by 8bps, raising the current coupon to 3.88%, we still have a bit more room to go before we claim that interest markets have stabilized.

The ECB shows no signs of easing rates anytime soon, based on commentary released earlier. ECB member Stark stated that "The central bank cannot contribute to a solution of the problems by lowering rates." This is somewhat of a surprising statement following the recent data out of Germany showing economic growth rising at a much slower pace than expected The growth forecast have been lowered to 0.5% from 1.2% prev. this will make it a difficult environment for the ECB to be steadfast on monetary policy. The EurUsd is likely to build on recent momentum, we are looking for the pair to stay within the range of 1.45-1.48, in the near-term. Light data out of the UK following higher retail sales data, the cable is likely to see further upside as the market digests the Fed bailout plans.

US financial markets are moving towards a recovery after the recent plans by the Fed to purchase over $700bln in illiquid assets from ailing institutions. The dollar fell as expected, due to the trillion dollars of cash needed to restore liquidity is a major liability to the govt. balance sheet. Stabilization in the housing sector and a string of positive economic data out of the US, otherwise Traders will become increasingly pessimistic through Usd selling.

AC Markets
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