The dollar rallied against most of the majors with the exception of the yen. The EurUsd dropped 108pips to the mid range of 1.33, while the UsdJpy declined 112pips to the low 89 price area. The GbpUsd dropped substantially, down roughly 350pips finding support at 1.48. Equity markets moved south on rising volatility and uncertainty regarding the financial markets. The Dow was off 1.46% or 125pts and the SPX dropped 2.26% or 20pts which was consistent with price behavior in other asset classes. Bond buyers were back in full swing, purchasing UST as all parts of the curve driving in yields as much as 8bps on the 2yr. Commodities were also subject to the selloff in risk, with oil down 7.6% at $37bbl, and gold slid 4% to $820.85oz.

Investors are awaiting the shift in administration with President Elect Obama coming to the White House. Significant changes to the TARP program, as well additional details regarding the Stimulus plan should be announced early into Obama’s arrival. These are critical to market participants who have capital tied up in Treasuries, as they need more information regarding Obama’s policies before they can make informed investment decisions. In the Eurozone, all eyes are on the ECB in regards to the rate decision on Thursday, January 15th. Traders are looking for a 50bps cut, anything short of this will cause massive reverberations throughout the market, specifically a rapid selloff in the Euro. President Trichet acknowledged the weakness in economic growth, and also expressed his dismal outlook for 2009. These statements sound dovish, but we should include the fact that the ECB suggested that will be a bit more apprehensive in terms of the pace at which they are cutting rates to avoid deflation. We would remain short the euro in the near‐term, especially during these times of heightened volatility and risk aversion.

ACM Forex
Avanced Currency Markets