20:00 GMT- Apr 19 (global-view.com) The Goldman Sachs fraud investigation regarding mortgage backed securities, and the Iceland volcano moved the Greek debt off the front pages for a day, but the Greek mess has not been resolved. Greek, or related Greek problems could resurface at any time. One safe harbor at the moment might be the JPY, but the Japanese government will not be pleased with this development.
Trade Monday was dominated by risk aversion in general, as no one knows where the civil case vs. Goldman Sachs will eventually go. It could peter out or lead to an expanded investigation that could go on for month or even years, involving a broad range of financial institutions of all stripes and governmental agencies from all over the globe. Our best guess is that it will not fade fast, but we really don't know. For the immediate future, it certainly should have a negative impact on risk trades, such as equities, and be supportive of treasuries.
The EURUSD is down on the day while the EURGBP is up. The GBPUSD is lower. The solidity of the EU accord to backstop the Greek finances is being questioned. IMF issues are being raised as well. Odds are the deal will hold, but there is an outside chance that the apparent accord could unravel with negative consequences for the EUR.
In the GBP, the markets are now zeroed in on the May 6 U.K. general election. An expected a close vote has traders waiting each day for new election headlines. Latest polls are suggesting that the odds of a hung Parliament are rising. This is the worst case scenario according to some, with no party winning a clear majority. This uncertainty has the GBP in play with negative implications.
We maintain a cautiously bearish bias for the EURUSD and GBPUSD. The EURGBP is a toss-up.
The EURCHF is steady. Some have been noting that the SNB has changed tactics and it has has been in the markets supporting the EUR vs. CHF much of the time. Weakness of the EUR vs. the CHF is a bad omen for the EUR.
The USDJPY pair is higher, and the EURJPY cross is steady. More Toushin bonds are set for issuance. The Hatoyama government continues to pressure the Bank of Japan to stimulate growth and favors an easier exchange rate. Junior Japanese ruling party lawmakers (DPJ) are calling on the government to push USDJPY to 120 to combat deflation. Some traders focus intently on the Japanese vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).
The risk trade was off Monday. The commodity currencies (CAD, AUD and NZD) are mixed. The Canadian FinMin recently suggested little concern about the strength of the CAD. A strong currency eases the pressure from the central bank to tighten policy too early. The Bank of Canada meets Tuesday. No rate changes are expected, but the main focus will be on the language about future policy. Oil and gold are down. We continue to favor the AUD and CAD from a fundamental perspective.
Far East equities closed lower. European bourses were down. U.S. equities are lower. U.S. Treasuries are still watching the psychological 4.00% level in the 10-yr note. The U.S. 10-yr was last 3.80%, +3 bps. Bonds are used as a counter to risk trades because risk investments must somehow be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades falls.
UPCOMING DATA HIGHLIGHTS:Far East markets early Tuesday will see NZ CPI data. In Europe, Eurozone Current Account and investment flows are due, and Germanywill see the results of the latest ZEW survey. In North America , the latest Bank of Canada policy decision will be a feature. The U.S.will see the latest Fed minutes and weekly API energy data.
See ECONOMIC CALENDAR for a complete list of future forex market events and consensus data estimates. Go to the forex forum for up-to-date market developments and technical trading ideas.
John M. Bland is an author, and co-founder and partner of Global-View.com in 1996. Before that, he was a Vice-President and senior dealer in the fx inter-bank and futures trading arm of the Continental Grain Company in NYC. Previous to that, he was an early member of the Chemical Bank (NYC) corporate advisory service. He also worked in international liability management. John has an MBA from the Hass School at the University of California at Berkeley and a bachelors degree in International Economics from Berkeley.
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