Risk aversion has dissipated throughout the markets as concerns over a quick and formidable resolution at tomorrow’s EU summit are rising.  Although no one is in disagreement over the topic of bank recapitalization – which is speculated to be in the area of 100 billion euros – the topic of bank haircuts continues to be a problem.  European governments, are steadfast in their request for private bond holders to share a considerable amount of the financial burden – by accepting haircuts of up to 60%.  Original haircut provisions were in the area of 21%, but were increased following findings from both the European Central Bank and the European Union officials.

Surprisingly, although traders are seeing a bit of weakness in the European single currency, the brunt of the risk aversion has taken the USDJPY currency pair to another post WWII record.  In midday New York trading, the USDJPY exchange rate fell to a low of 75.73 – down from the 76.00 psychological level.  However, the momentum may be short-lived as many speculators continue to fret over dramatic warnings sent by Finance Minister Azumi this week – ensuring future market interventions on a stronger spot rate.

The sentiment has also infiltrated US equity markets, with the Dow Jones Industrial Average falling by about 1.12% or 134 points to trade lower at 11,780.10.