The dollar reversed earlier losses as risk sentiment soured among bleak expectations for technology companies. The EurUsd fell 70pips to the high range of 1.27, while the UsdJpy gained 150pips testing 95 as a new level of resistance. The GbpUsd jumped 100pips trading through 1.44 to 1.45 on an improvement in bank sentiment. There is broad based reorganization of RBS separating the company into two different units. Equity markets went south in the US and Europe, with the Dow dropping nearly 2% or 142pts. Bond yields remain mixed with the 2yr still below 1%, and the 10yr flat at 2.78%. In commodities, gold bounced back from its lows early in the session to test $1000oz.
Investors appear cautious as a WSJ article suggested that the US government may increase its stake to up to 40% in Citigroup. Fears over nationalization triggered a short covering rally in EurUsd on Friday. More insight into the government's intentions is expected to emerge later this week. During the European session, the EurUsd dropped as worries over European financial sectors own problems continued to offset the dollar negative news. Meanwhile, there's no concrete result from the EU leaders' summit over the weekend, disappointing investors which had hope on the joint Eurozone bond issue. We maintain a positive outlook on the dollar against euro as risk sentiment returns. However, the pound was the one unit that continues to show relative strength against the greenback as UK financial corporate start to show more good signs recently. RBS will divide its company into two parts effectively spinning off the bad asset portion of it portfolio. No major data releases scheduled during the US session. The Fed's Fisher and Lockhart will speak at separate events today.
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