Dollar Bid Overwhelms Technical And Fundamental Currents

The back-weighted economic calendar didn?t cull the dollar?s steady appreciation Monday morning. Despite a weak Chicago Fed Reserve report on economic and inflation trends and revived reserve diversification away from the dollar, the US currency was able to push through resistance against a number of its major counterparts.

For EURUSD, the dollar bid tallied a more than 75 point move lower to break through 1.3465 support and put in a 5-week low in the process. The dollar?s advance against the Swiss franc was not as large, but was just as significant as in taking out 1.2285 resistance and taking the pair to a 2-month high at 1.2330. The steady downward-sloping trend channel in GBPUSD continues with Monday morning?s slide to 1.9675 - a level only 20 points above a big 50 percent Fibonacci retracement. Finally, the dollar?s strongest long-term performance was seen in USDJPY which tagged a fresh 3-month high 121.60.
With all the this week?s heavy, US macro data penciled in for Thursday and Friday, the dollar continued unimpeded in its steady rise Monday morning. Indeed, the only scheduled economic indicator to hit the wires this morning was the generally overlooked Chicago Fed National Activity Index read for April. This composite of 85 existing economic reports used to monitor growth and inflation trends improved slightly from its negative 11 position in March to a negative 10 last month. While this is a third-tier indicator in every respect, it takes on a greater significance under current conditions. Recently, the Commerce Department reported growth in the world?s largest economy decelerated to a 1.3 percent annual pace over the first quarter; and economists expect this advanced figure to be cut in half when the first revision is released next week. What?s more, the Chicago number seconds the more commonly followed Leading Economic Indicators index which has contracted in three in the last four months. However, there is always a dissenter in the crowd; and it helps when its is an official from the Treasury. Deputy Secretary Robert Kimmitt acknowledged the cooling of US first quarter growth at the G8 meeting this weekend; but he went on to project a pick up as the year progresses.
Looking back over the past 48 hours, domestic growth was not the only concern for diehard dollar traders. The trend of global diversification away from the long-term ailing dollar picked up steam when Kuwait announced it was abandoning its peg against the dollar in favor of a trade-weighted basket. In an effort to balance greenback sentiment, US private-equity firm agreed to sell a 9.9 percent stake of its forthcoming IPO to China. This is a first step in diversification away from US treasuries; but the redistribution into other US assets suggests there will be a limited negative impact on the dollar overall. In other China news, fears raised last week that the hike in their reserve ratio would put a weight on global equity markets proved overblown. This is a positive shift overall, leaving global markets relatively unscathed while also appeasing US politicians through its efforts to correct imbalances slowly. The loosening on the USDCNY band, relaxed regulations on foreign investing and efforts to stabilize domestic growth will definitely earn Chinese officials brownie points when they meet with Treasury Secretary Henry Paulson tomorrow and Wednesay.
The US benchmark equities indices were mixed through the US morning session as deals and earnings skewed sector performance. By 15:25 GMT, the NASDAQ Composite was the unquestionable leader with its big 0.8 percent rally to 2,578.94. The broad S&P 500 lagged with its own 0.24 percent advance to 1,526.33 while the Dow was struggling to end the day in the green on a marginal advance to 13,559.29. Despite high domestic interest rates and a possible tightening in regulations, conditions are obviously still ripe for mergers and buyouts. After weeks of speculation, a joint bid by TPG Capital and Goldman Sachs for Alltel Cop. is looking to break the record for the world?s largest leveraged buyout for the telecommunications industry. The announcement of the $27.5 billion bid sent Alltel shares 7.3 percent or $4.73 higher to $69.94. Back to the more common way earnings docket, Lowe?s shares sank 2.9 percent to $31.72 after reporting a 12 percent drop in profit last quarter due to slower construction activity.
Treasuries paid little mind to Kuwait and China?s efforts to dump US securities in an effort to diversify their reserve portfolios. By 15:20 GMT, the ten-year note was only 2/32nds off its open at 97-18 with its yield up a basis point to 4.808. The thirty-year security was trading 3/32nds lower at 96-21 as its own yield rose a basis point to 4.965.