Fears over the sustainability of the global economic recovery hit the major equity indexes, with the Shanghai Composite index being pummeled by nearly 6% and Tokyo's Nikkei index plunging by over 3%. Risk aversion was the key driver in the foreign exchange market on Monday, prompting a rally in both the dollar and yen. The greenback pushed the pound to its lowest level in one-month beneath the 1.63-level and the euro to a two-week low just beneath the 1.4050-handle. The US equity bourses tumbled at the start of the week, albeit faring better than their Asian counterparts. The Nasdaq led the declines, tumbling by over 2.5% while the Dow Jones was lower by 1.75% and the S&P 500 losing 2.15% by the afternoon session.

US economic reports released earlier today included the August NY Fed manufacturing survey, June TIC data, and the NAHB housing index. The NY Fed manufacturing survey improved by more than expected in August to 12.08, sharply beating forecasts for an improvement to 3.00 versus a reading of -0.55 from July. The June TIC report revealed net purchases of $71.3 billion versus revised net sales of $36.9 billion in the month prior. Meanwhile, the August NAHB housing index edged up in line with expectations to 18, versus 17 from July.

The calendar for Tuesday consists of July housing starts, building permits and the producer price index. Housing starts in July are expected to improve 600k units, up from 582k units in the previous month. Building permits are seen edging up to 580k units, versus 570k units in June. Meanwhile, headline PPI is estimated to decline by 0.3% from a 1.8% increase a month earlier and fall by 5.9% compared with a 4.6% drop in the previous year.

JPY Surges

Traders propped the Yen higher against the major currencies, dragging the euro lower to 132.53 and the pound to 153.52. Economic data from Japan revealed growth in the second quarter at 0.9% q/q and 3.7% y/y. Despite the upbeat figures, the Nikkei tumbled to its lowest level in 2-weeks, down by over 3% as traders questioned the sustainability of Japan's economic rebound.

EURJPY hovers near the 133-figure and remains poised to further test the downside. Following last Tuesday's break lower of the ascending trendline near the 138-level, the euro/yen pair has moved sharply lower, paving the way for additional losses to the 61.8% Fibonacci retracement of the move from 126.98 to 138.70, located at 131.40