Dollar, Yen rally as Risky Assets Tumble

The U.S. Dollar and Japanese Yen posted strong gainsovernight but profit-taking during the New York session helped these markets pare their gainsahead of the mid-session.
The U.S. Dollar and Japanese Yen posted strong gainsovernight but profit-taking during the New York session helped these markets pare their gainsahead of the mid-session.

The rallies in these two currencies were triggered byaggressive selling of risky stocks and commodities. Weaker equities, gold andcrude oil sent a message to traders that risk was going to be taken off thetable in the wake of the last week’s fraud lawsuit against Goldman Sachs by theSEC. Investors have been moving money to less risky, lower yielding currenciessince Friday’s surprise announcement on speculation the investigation maybroaden.

The EUR USD continued its slide on speculation that Greece wouldhave to tap its rescue loans to meet its short-term obligations. The spreadbetween Greek Bonds and German Bunds continues to raise concerns that Greece is onthe brink of collapse if it can’t service its debt.

The British Pound was down sharply overnight as concernscontinued to mount about the possibility of a hung parliament following the May6th election. Investors are worried that a virtual tie between the Labor Partyand the Conservative Party will mean that the next administration will have adifficult time working out solutions to its current budget deficit crisis.

The falling Eurohelped send the USD CHF higher early in the trading session. Traders areraising concerns that the Swiss National Bank will have to continue tointervene to protect the Swiss economy, especially its exports.

Increased demand for lower risk assets is helped to give theJapanese Yen a boost overnight although oversold conditions lead to a fastshort-covering rally in the USD JPY into the mid-session. Falling equitymarkets could lead to a turnaround in the Dollar/Yen into the close.

The sharp sell-off in gold and crude oil triggered a strongrally in the USD CAD at the mid-session. This rally is most likelyshort-covering rather than buying. Tomorrow the Bank of Canada meets to discussmonetary policy. The Canadian financial markets are indicating that investorsexpect the BoC to lean toward increasing interest rates as early as June 1strather than the earlier speculated July 1st.

Falling demand for higher risk assets as well as speculationthe Chinese will revalue the Yuan is helping to pressure the AUD USD and NZDUSD. Short-term oversold conditions are helping both of these currency pairs tocut their losses. New Zealand Dollar traders are cutting their losses onspeculation the Reserve Bank of New Zealand may talk about hiking interest ratessome time after June because of the improving economy. The RBNZ meets on April28th.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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