Monday April 19, 2010 - 18:05:16 GMT
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Dollar, Yen rally as Risky Assets Tumble
The U.S. Dollar and Japanese Yen posted strong gains
overnight but profit-taking during the New
York session helped these markets pare their gains
ahead of the mid-session.
The rallies in these two currencies were triggered by
aggressive selling of risky stocks and commodities. Weaker equities, gold and
crude oil sent a message to traders that risk was going to be taken off the
table in the wake of the last weekâ€™s fraud lawsuit against Goldman Sachs by the
SEC. Investors have been moving money to less risky, lower yielding currencies
since Fridayâ€™s surprise announcement on speculation the investigation may
The EUR USD continued its slide on speculation that Greece would
have to tap its rescue loans to meet its short-term obligations. The spread
between Greek Bonds and German Bunds continues to raise concerns that Greece is on
the brink of collapse if it canâ€™t service its debt.
The British Pound was down sharply overnight as concerns
continued to mount about the possibility of a hung parliament following the May
6th election. Investors are worried that a virtual tie between the Labor Party
and the Conservative Party will mean that the next administration will have a
difficult time working out solutions to its current budget deficit crisis.
The falling Euro
helped send the USD CHF higher early in the trading session. Traders are
raising concerns that the Swiss National Bank will have to continue to
intervene to protect the Swiss economy, especially its exports.
Increased demand for lower risk assets is helped to give the
Japanese Yen a boost overnight although oversold conditions lead to a fast
short-covering rally in the USD JPY into the mid-session. Falling equity
markets could lead to a turnaround in the Dollar/Yen into the close.
The sharp sell-off in gold and crude oil triggered a strong
rally in the USD CAD at the mid-session. This rally is most likely
short-covering rather than buying. Tomorrow the Bank of Canada meets to discuss
monetary policy. The Canadian financial markets are indicating that investors
expect the BoC to lean toward increasing interest rates as early as June 1st
rather than the earlier speculated July 1st.
Falling demand for higher risk assets as well as speculation
the Chinese will revalue the Yuan is helping to pressure the AUD USD and NZD
USD. Short-term oversold conditions are helping both of these currency pairs to
cut their losses. New Zealand Dollar traders are cutting their losses on
speculation the Reserve Bank of New
Zealand may talk about hiking interest rates
some time after June because of the improving economy. The RBNZ meets on April
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