The US dollar benefited once again from a trading session rife with risk aversion. US equities lost nearly another -1% on the back of yesterday's plunge and are now on a five day losing streak and down in 11 of the last 12 trading sessions to boot. The S&P made a seemingly important psychological close below the 700 level and the relatively ugly price action into the close does not bode well for the balance of the week.

US bonds were a touch lower despite the overall risk averse tone as Fed Chairman Bernanke's comment that Treasury purchases by the Fed will do little to alleviate current problems had investors shunning US paper at the margin. The 10-year closed up about one beep to 2.87%. Gold was lower again and shed -$9 towards 917 and it looks more and more likely that a test of the up trendline support by 880/875 is coming in the next few trading sessions.

EUR/USD sank about -50 pips and was sitting near 1.2555/50 ahead of the NY close.  The pair could be poised for some weakness in Asia if stocks there follow US equities markedly lower. Look for support on a move into the 1.2500 zone. EUR/JPY sank a more modest -20 pips to 123.20/10 as USD/JPY was bid up 20 points into the 98.10/20 area. The 98.80 level looks like the next hurdle for a move higher in USD/JPY and we would not be surprised to see a try towards 102 in the very near future.

USD/CAD was also a major mover as the Bank of Canada cut rates by the expected -50 basis points to a new low of just 0.50%. Investors initially squeezed the pair about -100 pips down ahead of the BOC release, as speculation that the bank would do less (like the RBA overnight) saw CAD strength emerge. When the result came in as expected, the pair shot up through 1.29 and never looked back. The 1.30 level is the next short-term target and we expect stops are building up there as we speak.

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