Dollar Action Mixed Weak Durable Orders, Highest Level Of Confidence In Over 5 Years

The data dam burst Tuesday morning in the New York session, leveraging FX volatility with market movers like durable goods and consumer confidence. However, the blunt force each release typically inflicts on price action was controlled by orchestrated release times.

Though the technicals, EURUSD blew through 1.32 resistance early in the London session on a 90-point peak-to-trough rally to 1.3250. The same dollar slide moved USDCHF through 1.23 with authority and leaving the pair to form a temporary base around 1.2205. Missing out on much of the action, GBPUSD marked its biggest move in an 85-point upward swing to 1.9675 in the European hours. Finally, the biggest hit the dollar received Tuesday was in USDJPY. The pair plunged 200 points from yesterday’s New York session close around 120.65 as flight to safety in the emerging markets found a prime buy in the Japanese currency.
Though the full US economic calendar was promising volatility for the majors, an anti-dollar bias was spreading long before New York capital markets range their bells. In recent days, the UN’s pressure on Iran for its uranium enrichment program and the steady rise in sub-prime mortgage defaults has kept the bearish wave close at hand. The gloomy sentiment quickly turned to full-blown dollar selling after the media reported a possible attempt on US Vice President **** Cheney’s life in Afghanistan. According to officials, a bomb was detonated at the main gate of a US army base where Cheney was staying. After 30-tumultuous minutes, the market settled down after it was announced that the Vice President was flown out of Afghanistan and that he was never in serious danger.
With the unexpected flight to safety in the overnight, the mood had already been set. When the first indicator came across the wires, cautious traders found themselves on the right side of the trade. Bookings for durable goods dropped 7.8 percent in January. While the headline number was only a three-month low, the figure excluding the transportation complex felt the biggest drop since June of 2002. Through the month, commercial aircraft orders dropped 54.6 percent while those for vehicles slipped 5.1 percent. These volatile numbers aside, the most concerning drop was the 17.3 percent slide in business equipment, the biggest in three years. This perhaps shows the slump in manufacturing is spreading as firms attempt to burn off inventories and cut spending to preserve earnings.
While bears would have been more than happy to keep shorting the greenback as long as liquidity supported it, the data took a considerable turn for the better a little later in the session. Existing home sales through January unexpected surged 3.0 percent to an annuazlied 6.46 million pace. Statistically, this was the biggest monthly increase in two years; but more importantly it signifies a considerable pick up from September’s low. Since previously owned homes account for 85 percent of the overall market, the indicator is one of the best signs that the worst housing slump in 15 years has reached its low. The other pleasant surprise was the Conference Board’s Consumer Confidence Survey. Contradicting the slip in the University of Michigan’s sentiment read for the same period, the Conference Board’s indicator reported the highest level of optimism in five and a half years. With employment and wage growth trends still well intact, pessimists are becoming harder to find. However, despite these two strong indicators there was still reason for caution. Coming in under the radar, the Richmond Fed Index came in at -10; which is a reminder that the risk for Thursday’s ISM report is to the downside.
Macro indicators had their place in the benchmark equities declines Tuesday, but the market was already on its way following the biggest drop in Chinese stocks in over ten years. By 16:05 GMT, the NASDAQ Composite paced the move with a 1.65 percent slide to 2,463.16. By the same time, the S&P 500 was off 1.18 percent at 1,432.20 and the Dow lost 1.1 percent to 12,492.95. The dour sentiment certainly took hold of the Dow components. GM shares dropped 3 percent to $32.95 while Alcoa’s sank 2.8 percent to $34.38. Worsening the tech slump, Apple shares dipped $2.09 or 2.4 percent after delaying the launch of Apple TV.
Treasury traders absorbed the drop in equities and the dollar as expectations for a rate hike from the Fed drained away. Ten-year notes rose 10/32nds to 100-10 by 16:05 GMT as yields dropped 4 basis points to 4.583. The thirty-year bond add 19/32nds to 100-29 while its yield sank to 4.693 on a 4 basis point loss.