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Poor Economic Data and Greek Rumors Hurt Markets

The euro was reeling this morning from fresh concerns the Greek debt would be downgraded.  Then US economic data was released which showed new unemployment claims at 496k, higher than the expected 461k and the previous period's 474k.  At the same time we got more bear news when the US Core Durable Good Orders number at -0.6%, was less than the forecast  of +1.2%  and +2.0% in the previous month.  US Equities responded to the negative news with the Dow plunging down over 165 points prior to a recovery..  With Euro and USD news not pretty, it is no surprise that this has benefited the yen. 

Testimony by Fed Chairman Bernanke yesterday was not what the recovery bulls wanted to hear.  The weak recovery was failing to produce jobs, so a rate increase, which some dollars bulls were hoping for later in 2010, seemed a lot less probable.  Today's initial testimony by the Fed Chairman took a new twist.  According to Market Watch:

"Federal Reserve  Chairman Ben Bernanke  told lawmakers Thursday that the central bank is looking into the use by Goldman Sachs  and other Wall Street firms of a sophisticated investment instrument to make bets that Greece will default on its debt.

"Obviously, using these instruments in a way that intentionally destabilizes a company or a country is counterproductive, " Bernanke said, adding that the Securities and Exchange Commission probably will be looking into this matter as well."

It appears that hedge funds and investment bankers are  manipulating the prices of credit  defaults swaps to destabilize the Greek debt situation.  This combined with a general strike in Greece that paralyzed most of the country is putting a big hurt on that country.  Credit the ingenuity of the investment bankers. Who else could discover a way to profit from the Greek's financial mismanagement.  There no doubt will likely be a discussion of new ways to regulate trading in credit default swaps.

With the publicity of the difficulties of the euro and the dollar, the yen is emerging as the currency of the week.  Only last Friday the dollar versus the yen was trading above 92, but this week's event has taken the pair back below the 89 handle.  It is not like the yen is a thing of beauty either.  According to Kyodo news as reported today:

 "Japan's credit rating outlook could be lowered in the years after 2010 if the government fails to come up with a credible plan to restore fiscal health and the nation's massive debt remains as it is now, Moody's Investors Service indicated Thursday.

"The issue is if the deficits can't be reduced in the years beyond 2010 then that will be quite negative," Thomas Byrne, Moody's senior vice president in charge of Asian countries' ratings, said at a press briefing in Tokyo."

While the money and the news is flowing in favor of the yen this week, we do not expect this to be a trend that lasts very long.  There is some support in the 89 area, but we are wary of the MACD crossover at the 0 level.  The last time this occurred was 11/6/2009 when the market was trading above 89, and this crossover preceded the plunge to 84.81 later that month.  With so many cross currents we are going to stay on the sidelines in this pair.

Disclosure: no positions