Fear is once again consuming the market and the agony has sent the market tumbling across the board. Equities ended lower in Asia and reflected on European markets that are trading in the red with the STOXX 600 lower and US futures pointing to a negative session after the long Memorial Day weekend.

The data was downbeat since the morning and continued to feed into already floating anxiety in the market over the prospects of slowing global growth recovery. The market instability and the vague economic outlook were fueled with further bearishness amid political tension. The Israeli raid over on ships bringing aid to Gaza increased the tension in the Middle East which now is coupled with the unexpected German President resignation and the vague futures for Japanese Prime Minister Yukio Hatoyama.

Signs of jitters are highly seen across the market, and the winners standing tall are clearly an indication of the risk-averse sentiment in the market. The dollar is surging higher, attacking its previous recorded top once again; the dollar index is trading bullishly attaching the sensitive resistance area at 87.40s where it set its high, marking the third attempt at breaching free of the top that has hurdled the index in the recent period. Meanwhile, gold is not at all different trading to the upside since this morning on mounting uncertainty over the outlook for the global economy trading currently around 1222.20 setting the high of 1224.01 after touching earlier the low of 1214.25.

The Japanese yen is also a gauge of sentiment at first sight, and surely it was no different than the latter two and managed to claim its gains despite the prevailing dollar strength. The political tension is mounting in Japan especially amid policy crash from the government which is pressuring the BoJ into more action undermining the longer term stability of the world's second largest economy. The selloff across markets has triggered risk aversion and haven demand and triggered a buy-back wave for the Japanese yen typically a funding asset.

We fear that Japan will reenter the vicious cycle once again, where the market instability and risk aversion continue to strengthen the yen undermining the nation's recovery and hurting the pillar for growth, which is exports, further pressuring unemployment higher and spending lower and most dominantly hurdle the BoJ's steps to contain deflation pressures. The pair is lingering currently around 90.94 rising off earlier lows set at 90.52. The pair is still under bearish strength if trading is steady below 91.45 and extends further safety towards 92.30. The pair is aiming at 90.00 areas and lower though the pair is now moving to the upside to unload negative momentum though we hold onto our expectations that the 91.40s area is capable of providing bearishness which resides with the 100 Days MA.

Europe remains the source of the agony and accordingly we are not even justifying the euro's behavior! The euro is under strong bearish pressure since the morning taking the pair to test new lows today at 1.2109 which is surely on the technicalities to test the $1.17 areas!

Markets still see that the austerity measures and the bailout package to contain the debt contagion are likely to hammer the nation's recovery which was surely expressed in the data recently. Yesterday, confidence slumped and today the manufacturing sector slowed and most dominantly the unemployment rose driven by none other than Spain!

We surely see the euro under heavy pressure on renewed budgetary woes in the region and the downside effect of the deficit burden will bestow upon growth and as a matter of a fact global recovery as the area represents around 20% of global growth. Though I truly personally believe that the euro depreciation will help an export-led recovery and leading economy Germany is surely a clear sentiment to that with unemployment dropping and manufacturing and exports holding at a steady pace.

Nonetheless, I surely will not undermine the power of the market, or the power of speculation! It was the mere trigger behind the fallout back in Lehman days and it can surely trigger a new relapse if the selloff continues!

Yet, I might just add one new aspect for you to ponder upon and not to take lightly. The unexpected German President Resignation yesterday is a new blow to the euro and its mother-ship GERMANY! Horst Kohler quit just one year into his second term over what seems to be objection to Germany's war tactics in turn for economic benefits! Yes Merkel is the leading power and the president is merely a commercial head of state just now is not the time for Germany to suffer a new blow of credibility! Germany is needed now to be strong and to be the shoulder to the rising problems in the area for it is the final word in the EMU!

The 16-nation currency is testing lower boundaries undoubtedly and from a pure macro economic perspective I do believe that the austerity measures will come with a price tag now and for the coming years just I do not expect the aggregate nation to relapse strongly into recession once more or to threat the global recovery as a whole, if reality meets my lower bound of expectations a quarter of negative growth of slight contraction might be seen in the latter half of the year, though I hold strong to the likelihood for the area to avert that scenario.

The adverse effects of instability in the euro area are surely reflected on the United Kingdom which is already dealing with deficit burdens on its own. The royal currency surrendered to pessimistic woes in the market and gave up to the dollar's strength despite good manufacturing data. The pair was held with the expansion in the sector though not enough to prevent the decline. The pair is currently trading around 1.4490s after setting the lows at 1.4436 we still see further bearish potential for today targeting 1.4390 protected by the 1.4585 areas.

We can notice heavy movement today as well for swissy and loonie in particular where surely both central banks are pleased to see since they adopt one of the strongest rhetoric among their peers over excessive appreciation and FX movement.

Swissy weakened heavily versus the dollar after the unexpected slowdown in the nation's performance in the first quarter. The economy expanded a modest 0.4% in the first quarter following more than double the expansion in the previous quarter. The slowdown in the EU is surely negative for Switzerland where it is the nation's biggest export market. The USDCHF surged to the upside setting the high of 1.1730 off lows set today at 1.1521.

As for Loonie, the prevailing pessimism and falling commodities hammered the currency forcing it to surrender yesterday's gains which were acquired by the more than expected surge in growth of 6.1% in the first quarter.

With the ongoing volatility and the pessimism in the market the BoC which is due to announce their interest rate decision in two hours time might just hold off the hike scheduled amid prevailing uncertainty! The recovery is fueling inflation and that is the driving reason for the bank which held to its promise to keep rates are record low of 0.25% till June. The USDCAD surged to the high of 1.0550 today and now trading lower around 1.0503.

Markets are expecting 25bp hike today from the BoC and if that is seen the pair might move slightly lower though we recommend observing the pair as I certainly see a high margin of risk that the Bank of Canada is likely to disappoint those expecting the hike today!