Dollar Advance Moves Ahead With Big Prints From Little Numbers

The dollar keeps powering along though the economic calendar is hardly fueling the move with strong numbers from top market movers. Instead, the steady greenback advance held its course this morning through unexpected prints from the lower rung jobless claims, Philly Fed survey and the sometimes ambiguous Leading Economic Indicators index.

Looking at price action across the majors, it is clear the dollar?s bullish leg has momentum even if it is gradual. A second day of declines for EURUSD brought the pair below 1.35 and brought carried spot to within 10 points of last week?s swing low at 1.3465. USDCHF surged ahead another 80 points to test the spike high back in early April around 1.2280. Congestion may be a thing of the past for USDJPY as the pair rises another 65 points to 121.35 and runs free of any technical resistance until 120.00/20. Finally, GBPUSD is cooling its declines as it slowly presses a new low at 1.9735, only 10 points below Tuesday?s floor.
A quick scan of the docket this morning may have encouraged dollar traders to take the day off or remove positions in expectations of low volatility and congestive price action. Not only would this been a mistake in terms of price action, it would have been a fundamental misstep as well. While today?s indicators were second tier at best, each printed a surprising number that could throw a wrench into long-term expectations for the grander trends in the economy. The first set of data to hit the wires was the best for the dollar?s rise. The Labor Department reported initial claims through the week of May 12th cooled to 293,000. This was in itself a four-month low and well below the 315,000 expected. What?s more, with the 298,000 pace in the previous week, this was the first incidence of back-to-back numbers under 300,000 since February of 2006. Aside from the obtuse statistics, the less volatile four-week moving average is also at yearly low; which makes a strong case for an outstanding case for a strong non-farm payroll this month.
Employment, on the other hand, was one of the negative factors for the Leading Indicators Index for April. The gauge surprised analysts and the market when it printed a 0.5 percent contraction for last month versus expectations for it to remain unchanged. As an outlook for overall growth, the indicator certainly casts a considerable shadow since this marked the third negative number in four months. Typically, three declines in a row precedes a recession. However, all is not doom and gloom. The prior number helped offset the steady down trend with a sizable revision from a 0.1 percent rise to 0.6 percent positive figure. Surely, this she reinvigorate the debate of whether a hard or soft landing is in store for the US economy. The final indicator crossing the ticker this morning plugged a confirmation for a manufacturing rebound. For the month of May, the Philly Fed factory activity index rose to a greater than expected 4.2. This was the fourth improvement at such a pace that a stable rebound is in the works. From the components, the solid turn was further evidenced. Components for new orders, unfilled orders and employment all improved as inventories marked up the only contraction. Looking ahead to tomorrow, there is only one report to analyze: the University of Michigan?s consumer sentiment survey. This preliminary reading is expected to reveal another decline which could seriously upset bullish convictions for the consumer and overall economy. At the same time, a better-than-expected print could generate a big move as the market could be caught off guard while preparing for the worst.
Stocks were once again starting the day off underwater - suggesting the recent rally is becoming harder and harder to sustain. By 15:30 GMT, the tech-heavy NASDAQ Composite Index was the deepest in the red with its 0.3 percent decline pulling it to 2,539.66. At the same time, the S&P 500 was off 0.11 percent at 1,512.43 while the Dow was 0.07 percent lower at 13,478.43. Though the buoyant markets are running out of big earnings reports to keep the bull market intact, there are still a few companies taking up the slack. JC Penny reported a better than expected quarterly haul of $1.04/per share and raised its forecast for the coming quarter. Investors in turn led shares 4.7 percent or $3.56 higher to $79.28. Elsewhere, the struggling print news sector had another disappointing update. The New York Times reported a 3.6 percent drop in ad revenues for the year through April, sending its stock 1.7 percent lower to $24.54.
Yields have finally thrown in support for the dollar?s move, giving some credibility to projections of the slightly hawkish bias the Fed has held onto. The ten-year note was trading 7/32nds lower at 98-04 by 15:30 GMT as its yield climbed 3 basis points to 4.738. The bond fell back 10/32nds to 97-21 allowing its own yield to climb 2 basis points to 4.90.