Over the past few months, a rally in U.S. equities has generally been met with a sell-off in the U.S. dollar. The primary reason was because parking money into the low yielding U.S. dollar was synonymous with risk aversion. Therefore one would expect that today’s 2 percent rally in equities should have driven the U.S. dollar lower against all of the major currencies. We did see dollar weakness, but it was only against the Australian and New Zealand dollars. The greenback increased in value against the Euro and British pound leading many traders to wonder why those currencies failed to participate in the rally.

Breakouts are beginning to occur across the foreign exchange market. After consolidating for the past few weeks, we have finally seen an upside breakout in the EUR/USD with the currency pair trading at the highest level since February 24th. USD/JPY has also fallen significantly and is at risk of breaking its March lows while the Australian and New Zealand dollars are attempting to break month long consolidations. The story today is dollar weakness. The greenback has weakened against every major currency except for the Canadian dollar. Other than the equity market’s feeble attempt to extend Tuesday’s gains, there was no major catalyst for the sell-off in the U.S. dollar.

The much anticipated announcements from Washington have triggered a dramatic turn in the currency and equity markets. With investors flocking back into the safety of US dollars and the Dow Jones Industrial Average falling 381 points, it is clear that investors are not satisfied with the Obama Administration’s new programs to unlock the credit the market and rescue the financial sector. If today’s announcements were to be measured by their ability to restore confidence in the financial markets, then the new President has failed miserably. Fortunately we are more optimistic and believe that economic stability will be restored under Obama’s leadership, but patience may be needed.