The Dollar and yen hold their stature as safe haven currencies, as investors brace themselves for a selloff in the US trading session. The EurUsd fell 85 pips to the low range of 1.26, while the UsdJpy dropped 140pips finding support near 94. The GbpUsd collapsed 400pips pushing the pair through 1.50 currently trading with a 1.49 handle. Equities in the US declined with the Dow down 360pts or 4.0% and the S&P500 off 30pts or 3.6%. The US followed the trend of the European stock indexes which are also in the red, both the FTSE and the DAX down over 2.5% in intraday trading. Bond yields are moved to lower levels, with the 2yr compressed under 1% and 10yr below 3%. Commodities sold off across the spectrum with oil at $50bbl, and gold at $783oz, which is consistent of the overall trend risk aversion.

The market is watching central banks in Europe and Asia ahead of an eventful week of monetary policy decisions. German retail sales dropped more than expected at 1.6% vs. 0.3%, providing a deeper insight into the state of the consumer. In addition, German Manufacturing PMI was lower than projected at 35.6 vs. 36.2, supporting the need for the ECB to address waning growth by cutting rates later this week. In the UK, speculation that the BoE will slash rates 100bps sparked a massive selloff in the Sterling as Traders build positions ahead of the monetary policy meeting.

The US economic data showed further downside to the crisis, with the US ISM figure released at 36.2 vs. 37 exp. Construction spending was slightly lower than expected at ‐1.2% vs. 1.0%. Both Fed Chairman Bernanke and Dallas Fed President are scheduled to speak later this afternoon regarding Fed policy and the US economy. The Usd is likely to continue its trend of strength against other major currency pairs, we are monitoring the correlation between equities and FX to build an outlook for 2009.

ACM Forex
Advanced Currency Markets