The dollar and the yen strengthened against the majors at the start of the week on the heels of risk-averse buying. A steep sell-off in the European and US equity bourses prompted heavy demand in the safe-haven currencies, which dragged the euro lower beneath the 1.29-level versus the dollar toward the 126-region against the yen.

The major US equity indexes were all lower by over 3% in the afternoon session, with the S&P 500 plunging by 3.77%, the Nasdaq down by 3.53% and the Dow Jones lower by 3.1%. Given the sharp run-up in US equities over the recent weeks, traders took profits despite a strong earnings report from Bank of America - which posted a $4.2 billion first quarter profit and tripling from the previous quarter. The catalyst for renewed fears in the financial sector were revelations that BofA needed to bolster its reserves amid burgeoning losses stemming from commercial real estate, consumer and credit card debt.

The economic calendar in the week ahead consists of February home prices, weekly jobless claims, March home sales, durable goods and new home sales. The major FX moves will again take direction from the equity market, with key earnings reports due out from IBM, Bank of New York, Coca-Cola, Yahoo, Apple, Microsoft and PepsiCo.

Euro Tumbles to One-Month Low

The euro slumped to its lowest level since March 17th against the dollar beneath the 1.29-level to 1.2890. With the ECB still seemingly split as to whether further monetary stimulus is warranted given the current economic outlook of the Eurozone, traders continue to punish the euro. Economic reports in the coming session will see Germany's April ZEW sentiment survey, due out at 5:00 AM. Consensus estimates call for the current conditions component to deteriorate to -90.0 from -89.4. Meanwhile, the April economic sentiment is seen improving to 1.5 from -3.5 a month earlier.

EURUSD will encounter support at 1.29-figure, followed by 1.2870 and 1.2840. Subsequent floors are eyed at 1.28, backed by 1.2760 and 1.2720. On the upside, gains will target interim resistance at 1.2930, followed by 1.2970 and 1.30. Additional resistance will emerge at 1.3035, backed by 1.3065 and 1.31.