USD Slumps as Stocks Surge

The greenback and yen traded lower across the board at the start of the week on the heels of a sharp surge in the US equity bourses. The catalyst for the steep gains was the Treasury’s plan to purchase nearly $1 trillion in bad assets from banks – with private investors expected to provide the predominant source of the purchases and thereby avoiding nationalization. The S&P 500 surged by over 7%, while the Dow Jones and Nasdaq were both up approximately 6.8% on the Monday session.
Economic reports released from the US revealed an unexpected jump in existing home sales for February, up by 5.1% to 4.72 mln units from 4.49 mln units a month earlier – defying calls for a decline of 5.3%. In the session ahead, the calendar consists of the January Richmond Fed survey and home prices.
The foreign exchange market will continue to take its cues from the equity markets with a shift to riskier assets remaining detrimental for the dollar and the yen. We expect the euro to further extend gains over the coming sessions against the greenback with our initial target around the 1.39-region.