Dollar Caution Despite Strong Home Sales And Durable Orders

Price action in the dollar-based majors was misleading for market participants waiting for fundamentals to shake things up. Though top-tier indicators were printing surprisingly strong numbers, there was little response from the dollar as next week beheld the greatest level of event risk seen in months.

From the EURUSD, the range shifted lower to find a top around 1.2940 and low on an intra-day spike to 1.2880. The swissie similarly slipped to a new low as USDCHF rose to 1.2570 before the start of the New York session. Another dollar firming against the pound pushed the pair down another 100 points to 1.9560. Finally, the carry-sensitive USDJPY produced the thinnest trading environment with a 40-point range forming below 121.65.
Though event triggers where finally available to the FX market, traders blatantly ignored them. Although Friday’s numbers offered strong support for the US economy and its representative currency, the risk with next week’s calendar was far too great to hazard an ill-fated attempt at front-running. In a metaphorical aligning of the stars, some of the most important indicators behind labor, manufacturing, growth and ultimately monetary policy lurked just over the horizon. Next Wednesday alone will likely pack more punch than the previous three weeks combined. On deck that day are: the Chicago Purchasing Managers survey; the Fed’s rate decision; and the first reading of fourth quarter GDP. No longer will the market have to make do with assessing how housing or consumer spending is affecting the economy; they will have the official numbers from the government. This extraordinary calendar is an especially interesting turn of events given the technical picture many of the majors are providing. The dollar is currently testing the waters of a major tide change against the euro, Japanese yen and Swiss franc. Even if these indicators should somehow neutralize each other’s impact, then a reads on consumer confidence, non-farm payrolls, ISM manufacturing and other key reports will have a go at pushing the greenback.
However, such an active week ahead should not blind market participants to the data that hit the wires this morning. The first set of numbers to be digested was the Commerce Department’s durable goods orders report. While the headline 3.1 percent was almost exactly in line with expectations, the less volatile measurement excluding the transportation complex delivered a sufficient amount of surprise. Expected to improve slightly, the ‘core’ ex transportation indicator actually jumped 2.3 percent. This was the biggest increase since March based on machinery, primary and fabricated metals and machinery bookings. Measuring future business investment trends, orders for non-defense capital goods excluding aircraft also rose the most in nine months. Elsewhere, the theory that the housing market has found its bottom may be panning out. New home sales for December unexpectedly jumped 4.8 percent to 1.12 million units. The strongest pace since April, sales through the end of the year were boosted by strong employment and wage trends while cheaper home and mortgage prices drew buyers back to the market. On the other hand, the biggest annual drop in sales in 16 years offers a good reason to remain prudently skeptical.
The rebound in stocks in the middle of the week proved to be short-lived as another round of disappointing earnings data left buy-and-hold traders cringing. By 16:45 GMT, the Dow was pacing a broad market decline with a 0.48 percent run to 12,442.56. Trailing behind, the S&P 500 Index lost 0.35 percent to 1,418.92 while the NASDAQ Composite slipped 0.2 percent to 2,429.29. From the headlines, the General Motors Corp. made the news after announcing it would delay its fourth quarter results and restate several past years of financial numbers. The auto-maker’s shares fell $0.36 or 1.1 percent to $32.78. In the biotech arena, Amgen’s fourth quarter numbers fell short of the street’s predictions. Shares of Amgen dropped 5 percent to $71.09 in the aftermath.
Like the currencies, the Treasury markets were little changed by mid-day trade with so much event risk in the wings. Ten-year notes edged 3/32nds lower to 98-05 while yields lost a basis point to 4.861 by 16:45 GMT. Bonds also lost 3/32nds to bring face to 92-31 while yields settled to 4.959 after shedding a basis point.