Risky currencies were sold in Asian session, as the SEC's allegations of fraud and conflict of interest by a US investment bank weighted on investor's sentiment. The EURUSD sank to 1.3437, while the USDJPY fell to 91.60. While the charges we very specific, there was significant position trimming across asset classes. Asian regional indexes and commodities, lead by a fall in Gold, were lower across the board. While in the short term participants will remain skittish, we believe the fear of contagion will fade quickly. After reading the SEC report, it seems like the accusations are very specific and the possibility that regulators and investors could use this as a spring board for broader actions against the financial sector looks unlikely. Given our view on the SEC case and that fact that general macro fundamentals remain supportive, we suspect this is more of a short term correction in high beta assets than a game changing reversal in sentiment. Interestingly lost in Friday's hysteria, was the US housing starts and building permits, which both rose giving the USD fundamental reasons for gaining strength. The IMF, EU and Greek emergency meeting that was expected to start today in Athens was postponed due to ash clouds spilling over European skies. This was potentially positive for policy makers, as Greek protestors were expected to come out in droves. A strong ground swell of Greek resistance would surely highlight investors concern that much is riding on the public's support of the fiscal austerity programs. Within Greece there is legitimate concern that the IMF will demand additional wage cut and tax increase for their portion of the rescue program. Should public support widely turn against the Governments pledge to stick to the austerity program, investors and potentially the IMF and EU neighbors might quickly loser their desire to assist.
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