The buck recovered from the overnight rout as news that the US government will take a larger stake in a major financial institution continues to permeate through the markets.
EUR/USD collapsed more than -120 pips to just above the 1.28 mark. The pair came close to but failed to take out 1.30 resistance which looks like the next important medium term pivot here. Now the 1.2765 overnight lows loom as immediate support. With weakness likely accelerating under 1.27 too. USD/JPY added about 130 points as well and took out the early January 94.65 barrier. A daily close above 95 should see gains accelerate as we move through the week.

US stock market futures continue to rally on the back of the de facto nationalization news, but this looks like an unsustainable knee-jerk reaction. While stemming some of the contagion that a collapse of one of these large institutions would create, the government also perpetuates a bad precedent by continuing to reward failure at the expense of responsibility and prudence.
That said, any move towards risk aversion in the NY session would not necessarily be USD negative, as this has been the currency of choice in a flight to safety scenario.

The highlight from an economic data standpoint this morning is Canadian retail sales for December which is expected to slip -2.7% after a -2.4% decline the prior month. We would look for a worse than expected result to elicit some short-term strength in USD/CAD with the 1.25 barrier in play initially. Weakness in the retail number would support the case that the Canadian economy continues to catch up to the US in rather swift fashion.

Upcoming Economic Data Releases (NY Session) prev est

  • 2/23 13:30 GMT CA Retail Sales MoM DEC -2.40% -2.70%

  • 2/23 13:30 GMT CA Retail Sales Less Autos MoM DEC -2.30% -2.00%

  • 2/23 15:30 GMT US Dallas Fed Manf. Activity FEB -50.50% -50.00%

  • 2/23 17:40 GMT US Fed's Lockhart Speaks on U.S. Economy