Dollar Collapses Under Data Downpour

For the third consecutive session, the dollar has been pummeled in the currency market. While the previous two days have evolved from the cumulative effects of Fed Reserve Chairman Ben Bernanke’s commentary and technicals, fundamentals easily took over Thursday.

The symbolic dollar pairing, EURUSD added modestly to yesterday’s breakout by pushing all the way to 1.3170 before retracing. Taking note, Swiss franc traders followed the anti-dollar sentiment by pushing USDCHF below the 1.2385 range bottom with an extension to 1.2340. On a similar note, USDJPY finally broke through its own floor seen at 120 in 100-point peak to trough move to 119.40. Finally, the British pound, troubled by its own disappointing data, lost 120 points against the dollar to act as the black sheep of the group.
Market-moving economic indicators were in abundance Tuesday – a solid way to keep volatility boosted in the wake of Bernanke’s first round testimony on the Hill yesterday. While the central banker will make a second go today before the House of Representatives, few expect his comments to drift into uncharted territory after side-stepping so many prying senatorial questions. Instead, traders have found there way to manufacturing and inflation numbers to light the dollar’s path. First thing this morning, factory activity shook the market to life with the only positive read for the entire morning. Expected to improve modestly with a 10.6 print, the indicator instead reported the biggest positive jump since July of 2005. Since the manufacturing sector has struggled over the past few months with national and regional gauges marking on-again, off-again contractionary periods, this indicator bodes very well for the fragile recovery in GDP. This indicator also helped to offset the backward looking industrial production number. According the government’s numbers, factory activity last month actually dropped 0.5 percent, the biggest contraction in 15 months.
Looking outside the manufacturing sector, the rest of the session’s data was even more convincing for dollar bears. With the political heat on the trade accounts mounting, today’s TICS report will not go over too well. According to the government’s numbers, net foreign investment in US assets dropped to its lowest level since January of 2001. Waning interest in Treasuries, corporate bonds and equities has left the TICS number well short of funding the physical trade deficit. Changing gears, inflation speculators will be revaluating their CPI outlooks after a weaker than expected report from the import price index. The volatile price gauge reported a 1.2 contraction in prices in January, while annual growth decelerated to 0.1 percent. When looking within the statistics it was easy to see that the energy group heavily influenced the overall indicator. Excluding the 7.3 percent drop in petroleum prices and other fuels, prices actually rose 0.3 percent on average for the month. Now, the market will hold its breath to see whether gasoline exacted the same influence on the consumer basket. Also notable for the day, the weekly initial claims number has darkened the sentiment surrounding one of the US economy’s best performing sectors - labor. Initial jobless claims for the week ending February 10th jumped to 357,000, the most since the final week of November. Much of this surprising rise is being attributed to the effects of the harsh winter storms that have hit the Midwest and Northeastern regions of the United States. However, it is hard to associate the highest level of continuing claims in over a year on temporary effects.
Equity indices struggled to move into the green Thursday morning as weak macro data offset strong performance from a few Dow components. By 15:30 GMT, the NASDAQ Composite marked the biggest move off the open with a 0.18 percent boost to 2,492.83. The Dow edged 0.09 percent higher to 12,753.95 while the S&P 500 was marginally higher at 1,455.47. Though the overall market hadn’t budged far from the open, there were a few outliers that stole the headlines. Dow component Caterpillar Inc. laid out a $7.5 billion stock repurchasing plan that sent shares $1.19 or 1.8 percent higher to $67.35. Leading the tech sector, heavy weight Qualcom saw its shares rally 3.1 percent to $40.90 after receiving an analyst upgrade.
Treasuries received a lift from the dour economic data released from the fundamental pen. Ten-year bonds rose 9/32nds to 99-11 with yields off 4 basis points to 4.707 by 15:30 GMT. Seeing its own yield shed 4 basis points to 4.818, thirty-year bonds rose 17/32nds to 95-02.