Goldman Fallout Sends U.S. Dollar Higher; Yen also Rises

The U.S. Dollar is trading higher against most majorcurrencies except the Japanese Yen as traders seek shelter in lower yieldingassets following Friday’s news that the SEC was charging Goldman Sachs withdefrauding investors.

The developing situation is wreaking havoc oncommodity-linked currencies since Goldman is a major player in this type ofmarket. Traders are also taking protection against the possibility that thisSEC investigation will involve other major investment banking firms. This isalso coming at a time when the government is pushing hard for more financialfirm regulations. The U.K.and the E.U. are also reportedly ordering their own investigation intoGoldman’s practices.

Additional pressure is coming from developing problems in Greece. Tradersexpect Greeceto trigger the mechanism that allows it to tap the recently approved rescuepackage. Late last week the spread between Greek Bonds and the German Bundwidened to over 400 basis points for the first time since the bailout plan wasapproved. This indicated that traders were nervous and concerned about Greece’sability to survive. Others believe that the $61 billion bailout figure will notbe enough to ensure Greece’sviability.

Finally, traders are also pressuring commodity prices inanticipation of a Yuan revaluation. Many traders feel this move will pressurethe Dollar versus the Japanese while helping to boost the U.S. Dollar againstthe New Zealandand Australian Currencies.

Today is a light day for economic reports. At 10:00 a.m. EDTthe government releases its Leading Indicators report. Investors are lookingfor a 1.1% increase. This report should not have that much impact on tradingalthough it will signal that the economy is still on its road to recovery.

Sharply lower Gold and Crude Oil has helped wipe out almostall of this month’s gains by the Canadian Dollar. Losses may be limited,however, because of the Bank of Canada meeting on April 20th. Traders expectthe BoC to give a strong indication of an interest rate hike sooner thanexpected. The Canadian financial markets are indicating that the next hike islikely on June 1 rather than the previously anticipated July 1.

Fear that the SEC’s investigation of Goldman Sachs mayindicate more financial regulation of U.S. financial markets and a reworking ofthe rules for foreign banks is helping to pressure equities and commodities,giving the lower yielding Japanese Yen a boost. Traders who have borrowed inYen are being forced to sell higher yielding assets to use the proceeds to payback the loans. This is triggering the weakness in the USD JPY this morning.

The NZD USD and AUD USD are trading lower along withcommodities and equities. Not only are traders dumping higher yieldingcurrencies and higher risk assets because of Goldman’s problems, but tradersare also anticipating that a revaluation of the Yuan by China will drastically reduce demand forAustralian and New Zealandraw materials.

With the situation in Greece continuing to unravel andthe traders still sorting out the details of the Goldman law suit and itsimpact on the markets, look for the Dollar to be a big winner today againstmost majors with the exception of the Japanese Yen. Traders seem to be expectingboth problems to escalate before they get better.

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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