The greenback surged on Tuesday, advancing by over 6-big figures against the euro from 1.4616 to 1.4008 while climbing by nearly 4-big figures versus the sterling from 1.8143 to a 2-week low at 1.7757. US equity bourses also rebound sharply on Tuesday following yesterday's session of record declines. The Dow Jones reversed some of Monday's losses, recovering by 4.68% while the Nasdaq and S&P 500 also rallied, up by 4.97% and 5.27%, respectively. The dollar benefited from growing optimism that a rescue plan to bail out the ailing banking sector will be passed as early as Thursday. In contrast, financial news from Europe continues to bode poorly for the euro amid burgeoning fears that European banks may also be teetering on the brink.

The markets largely ignored the economic reports released today, instead continuing to focus on the likelihood a financial rescue bill will be passed by week's end. Housing data revealed further declines with the July Case-Shiller home price index falling by 0.9% versus a 0.5% decline a month earlier while the annualized decline edged up to 16.3% versus a 15.9% decline previously. Despite the sharp deterioration in economic fundamentals and increased financial turmoil, the Conference Board's September consumer confidence survey improved by more than expected, jumping to 59.8 from 56.9 and posting its third consecutive monthly improvement. Meanwhile, the Chicago manufacturing PMI report declined by less that expected, easing in September to 56.7 from 57.9 a month earlier.

Euro Tanks

The euro posted its steepest single day drop against the dollar in New York trading, plunging by over 600-pips to 1.4008 on a combination of optimism that a bailout plan will be passed and heightened fears that European banks remain under pressure. Fresh revelations this week of capital injections into European Banks, Dexia and Fortis, have raised concerns over the solvency of European financial institutions.

EURUSD trades near 1.4090, with support starting at 1.4050 backed by 1.4020 and 1.40. Additional floors will emerge at 1.3970, followed by 1.3940 and 1.39. On the upside, resistance emerges at 1.41, backed by 1.4130 and 1.4175. Subsequent ceilings are seen at 1.42, followed by 1.4240 and 1.4280.