Dollar Free Fall Stalls Though New Lows Already In Place

Since the Fed announced its neutral lean yesterday afternoon, the greenback has put in new multi-month lows and subsequently rebound in a few short hours. Still a little shaken, dollar bulls will have time to gather their wits on Thursday’s fundamentally quiet session before the existing home sales report shakes up the currency market one last time before the weekend.

For price action, the pullback in EURUSD epitomized the mixture of caution and profit-taking seen across the majors. In the Asian session, the pair made a last-gasp spike to 1.3410 before gradually pulling back to 1.3350. At the same time, USDCHF formed a 1.2080 base before slowly working its way back above 1.21. The pound delayed its move against the dollar until the London session when GBPUSD rallied to 1.9730 before settling back to the range low round 1.9660. Finally, the previous 24 hours of action in USDJPY hasn’t amounted to any serious breaches of technical protocol. A low around 117.25 and return to 117.95 has kept a three-week long range intact.
The battered dollar was looking forward to a day of rest on Thursday. After a number of market-moving events in the past three days, traders had only jobless claims and the Leading Indicators index listed on the docket. The aggregate Leading gauge was undoubtedly the most influential report of the two. Already expected to slow, the Conference Board’s report surprised the market with a greater than predicted 0.5 percent contraction in its February print – the biggest drop in a year. Adding to the disappointment, January’s initial modest rise was revised down to a 0.3 percent decline. From the breakdown of the forward-looking indicator, half of the components reported declines for the month. The employment, factory activity and consumer sentiment components all contributed to the poor showing with individual declines of their own. Overall, this often over-looked indicator was perhaps saying more to traders than usual following the cooled rhetoric from the FOMC on Wednesday concerning inflation. Also hitting the wires, the jobless claims numbers reversed some of the pessimistic sentiment with the Leading index. First time filings for unemployment benefits fell to 316,000 in week through March 17th, the slowest pace since the opening week of February. However, the bullish convictions these numbers can rouse is limited considering the less volatile four-week average is still well above typical levels of previous months.
Looking ahead to Friday’s New York session, traders will be back on their guard. The National Association of Realtors February existing homes sales report will draw fundamentalists back to the struggling housing sector. So far this week, the housing numbers have been relatively mixed with a tangible downward bias. Leading indicators like the NAHB industry sentiment survey and building permits are promising weak sales and construction activity in the forthcoming numbers. Alternatively, the pick up in housing starts and a slightly dovish Fed offers a tentative basis for optimism. The former is a lagging indicator that is still caught up in weather related fluctuations. At the same time, the Fed’s slightly altered policy statement is far from a guarantee that a rate cut is on the way. Where will existing home sales fit into the equation? If the indicator prints lower as expected, it would support the disappointing leading reports and leverage speculation behind a deeper housing market slump.
The sharp afternoon rally in US stock markets yesterday couldn’t carry over to Thursday’s open. By 15:30 GMT, the NASDAQ Composite’s 0.28 percent slide to 2,449.02 was the biggest move for the day. At the same time, the S&P 500 lost 0.12 percent to 1,433.36 while the Dow slipped 0.06 percent to 12,440.07. Among the top market movers, Motorola marked considerable declines after dropping its profit forecast and a reshuffling in management. Shares of the mobile phone maker dropped 5.6 percent or $1.05 to $17.69. In accounting news, Barnes & Noble reported a worse than expected $1.84 per share earnings number for the fourth quarter that sent shares tumbling 3.4 percent to $37.66.
Treasuries, unlike the dollar and major stock indices, continued their moves as investors reveled in a normal yield curve. The ten-year note was 9/32nds lower at 100-13 by 15:30 GMT as its yield bumped 4 basis points to 4.573. Bonds sank 27/32nds to 99-19 while yields grew 5 basis points to 4.774.