The US dollar posted its strongest single-day gain since January, as a sharp rise in risk aversion led a flight to safety to the otherwise downtrodden greenback. A bearish Existing Home Sales report failed to restrain extended rallies; in fact, the trade-weighted Dollar Index continued its climb in the moments following the report. US equities proved far less fortunate; continued skittishness in the credit derivative and bond markets overshadowed bullish earnings reports to erase earlier gains.

The Euro fell across the board as nervous markets scaled back overextended EUR longs, losing 120 points to $1.3705. British Pound traders were likewise quick to cover one-sided positioning, sending Cable a similar 120 points off at $2.0505. The Japanese Yen was one of two major currencies to hold ground against the dollar, however, remaining exactly unchanged at ¥120.25 through time of writing.

New economic data showed that US Existing Home Sales fell to their slowest annualized pace since 2002. Yet a simultaneous gain in the median sales price actually served to boost the dollar in the moments to follow, and stable inventory levels likewise moderated bearish reactions to the data. According to the National Association of Realtors, the number of existing homes for sale represents an 8.8 month supply at the recent pace. Though this is far above levels seen through the height of the previous housing boom, it remains level with May figures and shows tentative signs of stabilization in inventory overhang.

Other event risk included the afternoon’s Federal Reserve Beige Book, but little change in the rhetoric left the US dollar motionless through late afternoon trade. Regional Fed presidents reported "moderate" or "modest" economic growth on a more local level, but "ongoing price pressures" remained a sticking point in the Fed’s assessment of the overall economy. A section on Construction and Real Estate showed that overall national activity declined on balance, but is interesting to note that certain district reported improving activity. In fact the report shows that San Francisco and New York City "asking rents for [commercial] space ‘continued to soar’." The marginally optimistic assessment of specific real estate markets notwithstanding, there was little of note on the typically market-moving Fed release.

Domestic equity markets saw continued volatility on the day, with an earlier advance reversing to considerable losses before stabilization through late afternoon action. The Dow Jones Industrial Average remained 27 points improved to 13,744 through time of writing, while the S&P 500 saw a much more modest 0.87 point gain to 1,511.91. Tech stocks remained nearly flat with the NASDAQ Composite 1.77 down to 2,638.09. Reports of continued troubles in the domestic lending market spread to worries over the recent mergers and acquisitions boom. Private equity giant Kohlberg Kravis Roberts reported that its high-profile acquisition of UK retailer Alliance Boots Plc was threatened by the inability to secure financing for the deal. Analysts report that continued skittishness over the US subprime lending crisis has led to similar worries over corporate debt, which may threaten to derail the buyout-led stock market rally.

Such a flight to safety was initially seen on a solid rally in US Treasury Bond prices. But a later stabilization saw the 10-year note remain exactly even at 96 and 27/32. Yields remained flat at 4.91 percent.

Antonio Sousa is a Currency Analyst for FXCM.