And the winner of this week's Academy Award for the most convincing rebound-story goes to, the Australian dollar!

The Australian dollar surged Thursday on the back of the upturn in the euro currency where investors bought into the announcement of the German government's plan to revitalize the banking system, launch fiscal stimulus and bailout neighboring economies whose downturn might threaten the survivability of the single European currency. In response the Australian dollar surged in value from 63.50 to 65.25 U.S. cents on global recovery hopes. By Friday, the mounting problems of European banks and escalating exposure to central and eastern companies and governments in that region fast-removed the gloss of the German plans. The Aussie fell back to where it started and the euro is once again in the firing line at $1.2570 having strengthened to $1.2760 just 24 hours ago.

Thursday's euphoria over prospects for a global rally quickly gave way to ongoing concerns over the state of the U.S. economy. Risk aversion returned Friday as investors once again piled into the dollar and the Japanese yen. The latter is a surprising choice given the volume of evidence presented this week in the media suggesting that the risks of seeking safe haven status in the Japanese currency could quickly backfire.

Now that government plans have been revealed in the United States with more meat on the bones of how President Obama intends to deal with homeowners facing foreclosure, investors are increasingly discussing the practicality and likelihood that the banking system is beyond repair. Nationalization of some of the nation's largest banks is a clear and present reality and their share prices are reflecting that prospect.

The Dow industrial average is the first major stock market average to revisit its November low and the broader S&P 500 index could face that same prospect today if investors once again throw in the towel. When all is said and done, investors have lost their confidence in those government plans or at the very least it would be fair to say that no government is big enough to stem the bleeding today. The point is that as a leading indicator the stock market tends to discount recovery. What investors are telling us is that any recovery is off the agenda until the bleeding process can be stopped. The current hemorrhage is beyond the capabilities of the Surgeon General.

With unemployment continuing to grow and with foreclosures and delinquencies creeping up on better-positioned American homeowners the focus is not on recovery but on the deterioration in the health of the banking system. Can you blame equity sellers for quitting the market? It does appear that global equity markets won't be spared a break beneath fourth quarter support levels next week barring a weekend plan from the G20 worthy of an Academy Award all of its own.

To our minds, that puts dollar strength squarely back at center stage next week. Commodity currencies and the euro all look to have identical chart patterns to that unfolding on the equity indices and that means that currency volatility will also step up next week as panic spills over from equities to currency markets.

Note the increase in put open interest on the euro, the yen and the pound in our data table. Yesterday currency bears stepped up purchases of British pound puts at the June $1.40 strike. That follows a 17% jump in put open interest on the euro where we noted plenty of activity at the April $1.25 strike.

Enjoy the Academy Awards this weekend. It might be the lightest relief we'll see for another seven days.