We spent Friday and Monday in a risk off mode as worries about the Goldman Sachs SEC charges took over and sent the bulls running for cover. While we’ve seen some moderate bounces during the European sessions on Monday and Tuesday, and strong data out regarding the better than expected ZEW data (German April economic sentiment coming in at 53.0 from 44.5 in March, above median forecast of 45.1), short-covering appears to be the main thing at play in the markets with positioning all wrong after NY basically ignored Goldman Sachs woes for reasons I’ll speculate on later in this post.
Today Goldman Sachs’ reported first quarter profits of $3.5 billion which also helped cushion the inevitable fall from grace that the company will soon face. Don’t be fooled by the large profits though, the company simply scaled back on adding to its compensation pool which was the source of the firm’s famously large bonuses. That helped send Goldman’s overall profits up 91% from a year ago’s earnings of $1.8 billion. So instead of paying themselves this time, they let the money remain on the ledger as profit, how unselfish.
The EUR/USD closed in New York at 1.3488 on Monday and has struggled to maintain a rally in Asian trading. I think Asia basically gave up at that point and early European traders sold once more with the pair hitting an intraday low of 1.3449. This same sell-off was interrupted by the good economic data out of the Euro zone and helped the pair rebound sharply but once above 1.3500 it has been a struggle to make further headway. I would say at this point that EUR/USD sellers have won the first battle this week after the better than expected German ZEW caused a spike to 1.3515 before being knocked back down so quickly. Being unable to consolidate gains above 1.3500 is a definite sign of weakness for this pair right now. But it’s only round one for the week. Also Greece’s 3-month treasury bill auction went pretty well, selling 1.95 bln euros of 13-week securities at a 3.65% yield. Investors bid for 4.61 times the securities offered.
I am not sure what the market is running on out there but there appears to be little substance at the moment. NY was not as interested in the Goldman Sachs fallout as one would have assumed considering the economic times we are in right now. I guess since this is earnings season where companies display there first quarter profits, the risk on option doesn’t seem out of the question just yet. Unfortunately Goldman Sachs like Greece is unlikely to go away anytime soon but the US market is somewhat ambivalent at this stage. Although we can almost certainly expect things to get ugly for reasons already mentioned above, I’m still very cautious of any sell-off being stronger than any rally we see. Right now I am short on the EUR/USD but not expecting to see a major move in either direction, I’m simply playing it candlestick by candlestick. As I am writing this, it appears that the NY session is consolidating at the 1.3450/70 areas with a break to the downside a strong possibility. I’ll post a video soon regarding this week’s trade activity, so check back at Forex-Nation for more. In the meantime, good luck to you all!
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