Investors swarmed into higher yielding assets after the sell-off in the commodities last week, and pushed the strengthening dollar further away from last weeks record lows. The US dollar strengthened the most against the Yen and the Swiss franc as carry trades accelerated, while the euro traded choppily to touch an intraday low of 1.5340. Nevertheless, the EUR/USD pair ended the day relatively flat near the 1.5400 level. As risk aversion dipped, the US dollar plunged against the commodity currencies, with the Australian and the New Zealand dollar picking up the biggest gains, while the Canadian dollar trailed behind. The US dollar also fell against the British Pound as hopes for a rate cut by the BoE subsided, but was able to hold its ground as the pair remained under 1.99.

Falling US housing prices led Existing Home sales to pick up for the first time in seven months – spurring speculation that the housing market is nearing a bottom. Indeed, sales rose 2.9 percent after falling 0.4 percent during the month prior as home prices dwindled. The rising demand for home investments also reduced the overstock of inventories by 3 percent, but it will still take some time before the overall market can improve.

The securities market advanced as investors increased their risk appetite, with JP Morgan Chase adding to the bullish sentiment as they increased their bid for Bear Stearns to $10 a share from $2 a share. Consequently, the DJIA rallied 187.32 points to raise the average to 12,548.64, with only 3 of the big 30 declining. Among the broader indices, the S&P500 climbed 25.85 points to bring the index to 1,355.36, with Bear Stearns leading the winners as it rose by $5.29, while Freddie Mac posted the biggest loss.

Investors left the safe haven of US Treasuries as risk aversion subsided, and pushed prices lower due to the improved appeal of higher yielding assets. As a result, the benchmark 10-Year yield jumped to 3.55 percent from 3.33 percent, while the 2-Year yield rose to 1.81 percent from 1.60 percent.

Looking ahead, we expect US dollar volatility to persist as fresh economic data will be poured throughout the rest of the week. For tomorrow, we expected the S&P/CaseShiller House Price index to add confirmation to the recent rise in home sales, while downward pressures will take hold of Consumer Confidence as the economy is faced with a recession.

Antonio Sousa is a Currency Analyst for FXCM.