North American OPEN

Top Stories

• Global equity markets crash –4% on the open as financial crisis embroils Europe
• Germans follow Greece, Ireland and guarantee deposits at gross liability of >500 Billion euros
• Italy Berlusconi to propose EU-wide bank bail-out fund for 3% of GDP, Germany and France agree – ANSA
• UK Government may re-capitalize banking system
• China, So. Korea and Japan mull bail-out plan - South China Morning Post
• Hypo Real Estate bailout raised to 50 Billion euros shares off –25%
• BNP Paris takes over Belgian part of Fortis beomes biggest deposit bank in Europe
• Short term dollar demand eases in overnight market
• Dollar demand should ease as 2Q comes to an end
• Oil breaks $90/bblas gloom spreads
• Gold off another $10 at $825/oz. as liquidation continues

Overnight Eco

• EUR Sentix Investor Confidence –27.8 record low

Event Risk on Tap

• CAD Building Permits markets looks at –1.4% contraction
• CAD Ivey PMI market sees 51 vs. 51.5 last
• USD Fisher speaks, also Volker and Furgeson speak on financial regulation

Price Action

• USD/JPY trades thorough 103.00 before bouncing as risk aversion reigns supreme
• AUD/USD breaks 7500 as carry slaughtered and markets best on 50bp cut from RBA
• GBP/USD holds the 1.7500 level in relative outperformance but still weak on the night
• EUR/USD: slides all the way to 1.3549 as banking crisis spreads to Europe

Euro Crashes on Chaos in EZ Financial Sector as Policymakers Scramble for A Solution

At the start of new week of trading, the EURUSD fell hard once again reaching a low of 1.3549 in early European session as the financial sector crisisspread across the Atlantic and European policymakers scrambled over the weekend for a unified solution that did not come.Instead various European governments resorted to ad-hoc measures with Germany agreeing to guarantee all bank deposits in the country. The blanket guarantee by Chancellor Merkel’s government amounts to more than 500 Billion euro open liability – a sum larger than the $700 Billion bailout package passed by US Congress.

In the wake of similar moves by Greece and Ireland last week, Germany had little choice but to act, as policy makers feared a massive outflow of retail funds from the German banking system with savers taking advantage of the regulatory arbitrage that suddenly developed in the banking market. Yet the moves only served to highlight the fractured nature of European monetary union with traders even fearingthe possibility of stress on the euro currency itself.

While we believe that any speculation on the break up the euro is highly unlikely at this point in time, if the crisis of confidence accelerates all scenarios are possible and the current price of the EUR/USDis beginning to reflect this fear premium as markets grapple with the unprecedented turbulence in the global financial sector.With the pair droppingtowardsthe 1.3500 handle the temptation to run stops at that level will increase as we head into North American session and if US equities follow the global meltdown overnight further EURJPY sales could pressure the pair to break below that barrier later in the day.

Meanwhile the yen continues to perform best on a relative basis with USD/JPY hitting 102.84 in late Asian session tonight and the pair continues to be our favorites anti—dollar bet as DJIA average looks to break the key 10K level which is likely to pull USD/JPY towards the 100 level. With no key eco on the calendar, macro flows will dominate trade once again and investor confidence in the various G-3 government schemesenacted over the past several days will be tested once more.