Dollar Finds Little Help From Strong Retail Sales

With each day, the dollar’s path seems to be further dissociating itself from the fundamentals. On a laundry-list day of economic releases, a strong retail sales report whose numbers came nearly in line with strong expectations did little to pull the greenback off its lows.

In the way of price action Monday morning, EURUSD slowly carved its way to a new high at 1.3580 before trading in a tight 25-point range above 1.3540. The USDCHF continues to drift lower of its trend channel break last week, though spot has narrowed to a 35-point range ahead of event risk tomorrow. Another pair that made fresh anti-dollar highs was GBPUSD, which rallied to 1.9940 – a level that has not been matched since October of 1992. Finally, the only pair to have found itself back in the favor of the dollar amid the resurgence of the carry trade was USDJPY. The pair finally made a sustained move above 119.50 resistance on its way to near 100-point rally from overnight lows.
For those currency traders looking for event-driven momentum from the dollar, today’s economic calendar was quite the disappointment. The key release for the morning was the Commerce Department’s retail sales figures for March. Accordingly, headline spending rose 0.7 percent to slightly beat out expectations. Alternatively, the less volatile, ex autos number, though reporting a stronger move in its 0.8 percent advance, fell short of its own consensus. However, when looking at the component data for the indicator, the optimism garnered from the strong headline prints was diminished somewhat. The best performing sub-gauges for the period were those for sales of building materials and gasoline which rose 1.4 percent and 3.1 percent respectively. This casts a shadow of doubt on the overall health of consumer spending, as the housing sector has not yet turned higher while gas receipts have grown as energy prices rise. What’s more, higher fuel prices absorbs incomes and culls discretionary spending.
When the retail report failed to generate the action many market participants had hoped for, they moved on to evaluate the rest of the day’s offerings. Released at the same time as the spending report, the Empire Manufacturing survey for April confirmed volatility had died down, though the 3.8 print offers little consolation to dollar bulls as it is still the second lowest level the indicator has seen in two years. Later in the day, the TICs balance and NAHB Housing Market Index weighed market sentiment even lower with disappointments of their own. Net purchases of US securities slowed more than expected in February to $58.1 billion as international investors responded to the beginnings of a sub-prime shake up and severe correction in equities markets. Overall government agency bond purchases fell from $35.8 billion to $2 billion. The comparatively small contraction in US stocks from $22.8 billion to $13.5 billion suggests the full effects of last month’s correction across the benchmark indices will not take full effect until March’s number. Similar to the disappointment in the manufacturing sector, housing has started off its latest round of data on faulty footing. The NAHB survey fell further than expected, matching six-month lows that seem to confirm the poor new home sales and permits numbers from last month.
Stocks shot out of the gate Monday morning with a smattering of key earnings and merger announcements. By 16:15 GMT, the S&P 500 took the lead on the broad market rally with a 0.98 percent advance to 1,467.15. Not far behind, the NASDAQ Composite rose 0.95 percent to 2,515.52 while the Dow climbed 0.81 percent to 12,714.69. Keeping the earnings ball rolling, the financial sector saw the bellwether print its numbers. Citigroup reported an 11 percent drop in first quarter profits from a one-time cost cutting program, though revenue surged 15 percent over the same period. Investors were obviously prepared for the profit number as shares rallied 2.5 percent or $1.29 to $52.89. In other news, Sallie Mae parent SLM Corp. confirmed its sale to private equity group J.C. Flowers for $25 billion. Shares of SLM surged 17.8 percent to $55.06 after the announcement.
Treasuries had only marked moderate moves by the middle of the New York session as traders shifted their focus from today’s data to tomorrow’s Fed-centric inflation numbers. The ten-year note was trading 3/32nds higher at 99-01 by 16:15 GMT while its yield fell one basis point to 4.747. Longer-termed bonds on the other hand produced a bigger move totaling 13/32nds to 97-20 as yields slipped 3 basis points to 4.902.