The EUR USD fell sharply lower on Monday as traders sold Euros looking to raise cash to invest in the U.S. Treasury markets. Signs that the global financial crisis was worsening were apparent from the opening Monday morning when it was announced that the German government had to bailout Hypo Real Estate Holding AG. In addition, the Belgium government took over Fortis just a week after pumping substantial amounts of money into it to keep it solvent. More problems are expected to surface because the Euro Zone does not have a plan to bailout ailing financial institutions. Talk is circulating that the Fed and other foreign central banks are discussing the need for a unified strategy to provide liquidity to the credit markets. This may include an across the board cut in interest rates.

The GBP USD broke sharply to a new low for the year as traders are losing confidence that U.K. financial institutions will be able to survive this latest round of financial turmoil. With the housing problem getting worse in the U.K., traders are anticipating another financial institution failure and are looking for a safe place for their money. Traders are expecting the Bank of England to cut interest rates on October 9. This effort may be too little, too late. Furthermore, the Bank of England is also rumored to be joining the United States and other Euro Zone nations to come up with a solution to the credit crisis. Traders are hoping that the Fed, the Treasury and other nations will get together to stop the slide.

The USD JPY collapsed under the pressure of massive U.S. stock liquidation. The credit crisis has just about killed the carry trade. With banks unwilling to lend money, traders cannot borrow cheaply in Japan to invest in the U.S. stock market. Japanese banks are also rumored to be calling in loans, which is further accelerating the weakness. Continue to look for lower markets as traders will seek the safety of the Yen as they dump more risky higher-yielding assets.

The USD CHF posted a gain on Monday. Global traders are seeking the safety and liquidity of the U.S. treasury market. Some traders feel that Swiss Banks are at risk because of their relationships with Euro Zone banks. Look for the Dollar to gain on the Swiss as long as the market lacks confidence in the Euro Zone banking system.

The USD CAD weakened on Monday as commodity prices collapsed. The rally in gold was not enough to offset the losses in crude oil and grains. This sent signals that the Canadian economy would be threatened because of its reliance on commodity markets. Expectations are for commodities to continue to decrease in value as the world braces for a recession. This would seriously cut demand. Furthermore, commodity futures contacts are being liquidated to meet margin calls. Look for more weakness as a global recession is likely to drive down the price of commodities which should weaken the Canadian economy. Traders are also anticipating an interest rate cut by the Bank of Canada later in the month.

The AUD USD weakened as global traders reduced their demand for higher-risk, higher-yielding assets. The strength in gold could not offset the massive liquidation in the global equities markets. Traders are expecting more downside pressure as there does not seem to be an end to the credit crisis. Australia may join the rest of the major Forex central banks in calling for an interest rate cut to help alleviate the credit crisis.

The NZD USD also fell as traders are shunning higher risk; higher return assets for the safety of the U.S. treasury markets. Traders are not focusing on return at this time, but instead are looking for safety and liquidity. Look for more downside pressure until the global financial community can find a way to free up liquidity. Expectations are for New Zealand to join the group of nations calling for global interest rate cuts.

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