Forex Market Hit By Crisis Of Confidence

A full-fledged meltdown in the forex markets is the best way to describe today’s price action as investors sought safety in the low yielding U.S. dollar. The greenback rose against every major currency except for the Japanese Yen which further indicates that risk aversion is behind today’s strong demand for dollars. Do not be mistaken – traders are not loading up on the buck because they believe that tomorrow’s non-farm payrolls report will be strong, but because they are unwinding high risk positions and reducing exposure ahead of NFPs. With credit default spreads for Greece, Portugal and Spain rising significantly, traders are nervous about how the situation in Europe will pan out. So far, the European Union has failed to calm investors by bailing out Greece or any other nations but they could easily end the euro’s crisis of confidence if did what the UAE did for Dubai. Although investors are not as worried about the U.S. deficit as they are about European deficits at this time, the S&P 500 still fell by the largest amount since October 30th which indicates that Greece’s problems have influenced the world, whether the Europeans like it or not. It also didn’t help that the ratings agency division of Standard & Poor’s downgraded Berkshire Hathaway and that Bank of America agreed to shell out $150 million to strengthen its corporate governance and disclosure practices as part of their settlement with the SEC. This is a story of deleveraging in an environment that is not as severe as the credit crisis, but just as nerve racking in its own way. A strong non-farm payrolls report could turn risk appetite around, but skittish investors will need a lot of convincing to get them to stop selling and to start buying.