Dollar Sold Off On Risk Appetite, Dollar Index Broke 80

Risk rally resumed on optimism that additional easing from US and China, following the OMT announcement from ECB last week. The Dow breached 2012 high of 13338 overnight even though it didn't manage to close above there yet. Asian equities are broadly higher with Nikkei up over 130 pts while HK HSI is up over 180 pts at the time of writing.

The dollar was additionally weighed down by Moody's warning and faces tremendous selling pressure against other major currencies. The Dollar Index broke 80 psychological level and is still on course to 78.60 support level next. Main focus today will be on German court's ruling on ESM but markets could probably look beyond it to tomorrow's FOMC meeting.

Moody's warned yesterday that it could lower the Aaa rating of US government debt if a deal cannot be reached from budget negotiations. The rating agency noted that in case the negotiations "lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium-term, the rating will likely be affirmed and the outlook returned to stable." However, "if those negotiations fail to produce such policies, however, Moody's would expect to lower the rating."

In China, Premier Wen Jiabao attempted to comfort investors and assured that the government would strive to boost economic. At the World Economic Forum, he stated that the government would "give greater priority to stabilizing growth... We have full confidence that the target for China's economic growth this year will be met." Wen emphasized that "be it monetary or fiscal, we still have ample strength." He also noted that there remained RMB 100B in the stabilization fund which would be deployed if needed.

The German Constitutional Court will decide on Wednesday whether it would allow Germany to join the ESM, a fund worth of 500B euro and is for bailout out debt-ridden countries in the eurozone. Opponents of Germany's participation in the ESM conservative legislator Peter Gauweiler, a group called "Europe Needs More Democracy" and Germany's Left Party.

The court would decide whether to issue a temporary order that would prevent rectification of the ESM. The order would last until the court announces its final decision on the full case, probably early next year.

Also in Europe, after meeting with Greece's Prime Minister, the ECB issued a statement, saying that "both parties agreed that Greece has already taken significant steps towards budgetary consolidation and economic modernization but that major challenges remain."

The Prime Minister assured the ECB delegation of his and his government's commitment to getting the adjustment program back on track and continuing the necessary reforms for Greece to regain competitiveness and put its economy and public finances on a solid footing." In Portugal, a Troika delegation also released a statement after his visit saying that "overall, this review confirms that the program is making progress, albeit against strong headwinds."

On the data front, Japan machine orders rose 4.6% mom in July while tertiary industry index dropped -0.8% mom. Domestic CGPI dropped -1.8% yoy. Australia Westpac consumer confidence rose 4.6% in September. German CPI was finalized at 2.1% yoy in August. UK job data will be the main focus in European session. Eurozone industrial production and US import prices and wholesale inventories will also be released.