Rate follows GBP in two-way action, holding support now at 1.2550 area once again. Aggressive traders can add to open longs on this dip. Cross-spreaders supporting rate as GBP drops. Stops building on both sides as the rate tests for stops on the downside first.

Upside stops likely building in the 1.2630/50 area again, overhead resistance at 1.2720 area now with stops likely the other side. Key 1.3030 area likely next; failure to hold 1.2900 likely going to be the test for the bulls this week. Close above key 1.3030 area needed for further upside until then rallies likely to be sold so expect more two-way action.

The USD is holding gains into the end of New York trading today after solid two-way action overnight put the Greenback on the offensive into this morning. Rising to new weekly highs against GBP and yearly highs against CAD; other major pairs remain range-bound and inside-range. Traders note that cross-spreaders for GBP pairs kept Sterling on the defense all day putting in a low print at 1.3741 before stabilizing back on the 1.3800 handle for most of the day.

The USD/JPY is rallying Monday morning, bucking its positive correlation with U. S. equities. The new negative correlation between the two continues to be confirmed with investors judging the currencies based on the comparative economic strength of Japan and the U. S.

With the Carry Trade unwound, running to the Yen as a `safe haven' is over. Even though the U. S. economy is crumbling, the Japanese economy is worse off. Today Japan released a discouragingly low Current Account Surplus, revealing Japanese exports are deteriorating faster than expected. Lower exports spells more trouble for Japan's manufacturing base.

The EUR/USD is selling off sharply on Monday, following the Pound and U. S. equities lower on the news Britain is nationalizing Lloyd's bank. Furthermore, HSBC experienced a rapid selloff, signaling the financials are in for another wave of turmoil on a global front.

This realization alone is foreboding that the major EU banks will experience similar troubles. With the ECB holding its benchmark at relatively high levels compared to the Fed and BOE, investors are speculating the ECB will need to lower rates closer to zero as well.

Encouragingly, the EUR/USD is catching itself above February and March lows, rescuing the currency from a traumatic selloff for the time being.

The Cable is crashing Monday on the news Britain is nationalizing Lloyd’s Bank.  Additionally, it seems HSBC has considerable exposure in U.S. loans, hinting it will need further assistance from the British government.

 Hence, the Britain government is committing itself fully to unknown levels of toxic debt, meaning the BOE may have to print many more Pounds to account for the losses.  This news has sent the GBP/USD tumbling below our 1st tier uptrend line and well below the psychological 1.40 level.