The dollar gained substantially against most of the majors recovering most of this week’s losses. The EurUsd sunk over 360 pips to the high range of 1.38, while the UsdJpy was mostly flat up only 7pips to mid 89 price area. The GbpUsd dropped an additional 160 to the mid 1.48 level, due to several factors including weak economic conditions. Equity markets have traded traded closely to yesterday’s levels with the Dow and SPX virtually unchanged. Bond have given up light ground with 2yr and 10 yr yields higher by 5bps, but remain considerably lower from average levels. The commodities sector was the most active with oil down 8.25% at $33bbl, and gold off 1.61% at $839oz.

We are seeing an unwinding in risk throughout the marketplace, hence the revival dollar strength. In addition, some macro‐themes are having a strong influence on trading the key factor being interest rate expectations for both the UK and the Eurozone. The ECB is using alternative mechanisms to generate liquidity in money‐markets, raising the emergency lending rate and lowering the overnight deposit rate. These changes do not have a direct effect to the credit sector until January. We still may see a rate cut in Q1 2009, but the ECB is certainly reassessing the pace by which they ease monetary policy. In the UK, Gfk Consumer confidence was better than expected ‐33 vs. ‐39, which is still a negative reading. The Sterling continues to correct, and the selling pressure will probably settle in the beginning of next year.

US financials cannot get a break, as S&P downgraded 11 major financial institutions including the once AAA rated Wells Fargo bank on the basis of a negative outlook for the sector. US GDP, Existing home sales, and University of Mich. confidence is scheduled to be released next week on the Dec 23rd. The data is not likely to be positive as surrounding factors in housing and consumer credit are restricting spending, as well as limiting growth. The dollar is likely to thrive in this environment, as the treasury bubble persist with such heavy demand for US bonds, once this rally ends we will see strong move to the downside for the greenback.

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