Global Contraction Deepening and US Officially in Recession

The dollar rose against its rivals except the yen on growing concerns the global economic slump is deepening and consumers' access to credit is shrinking. Federal Reserve Chairman Ben S. Bernanke said he may use less conventional policies, such as buying Treasury securities, to revive the economy. He also signaled further interest-rate cuts. Manufacturing purchasing managers' indexes showed manufacturing around the globe is plunging. The Dow industrials sank 680 points wiping out more than half of last week's historical rally. The Australian and Canadian dollars declined as commodity prices fell. Gold tumbled the most in eight months and crude oil dropped below $50 a barrel.

The USD/JPY fell to a one-month low as risk aversion and asset deflation returned. International stocks and commodities plunged. US treasury yields declined to a record low as Bernanke indicated the Fed will not be constrained by the liquidity trap as they can buy other assets while expanding their balance sheet. The USD/JPY is in a clearly defined downtrend, testing the important 92-area support. If this is broken, the pair may drop significantly. There is resistance in the 97-area.