Today?s economic calendar was a good follow up to the Fed?s decision to leave rates unchanged at the end of its two day meeting yesterday. The central bank?s favored inflation gauge cooled to a new multi-year low, while weak consumer spending numbers added another facet to the concerns for the economy.
The dollar?s tumble was clearly seen in the EURUSD?s take off. The pair made one more test of1.3430 support before taking off on a gradual 110-point climb to 1.3540. USDCHF threw the market off after its push through resistance yesterday evolved into a false break and then sharp sell off this morning. After 120 point drop for the greenback, USDCHF was trading near 1.2215 support with few technical levels in the vicinity. Interestingly enough, the usually active British pound was conservative in its advance against the dollar as the pair rose only 65 points from overnight lows before finding a weak ceiling at 2.0075. Finally, it was a battle of the weakest for USDJPY as the pair spent most of the day in a 30 point range below 123.55.
A packed economic calendar doesn?t necessarily guarantee price action. This is obvious given this past week?s lack of direction for the US dollar. The currency was only put into motion today on an overall mixed bag of economic releases. In an interesting twist of fate, this morning?s slate of releases seemed to come across like an extension of yesterday?s FOMC statement. When the Board of Governors handed down their decision to leave the Federal Funds rate unchanged at 5.25 percent for yet another month, they emphasized the same concerns for growth and inflation in the accompanying statement that they have stuck to for the past few quarters. Upsetting the Fed?s delicate balance to leave rates alone, the group?s favored PCE inflation report actually slowed to its slowest pace of growth since February of 2004. At a 1.9 percent pace of growth over the year through May, prices are now below the Fed?s target rate. If energy prices do not develop into a problem in the coming months, the path for a rate cut will become clearer and clearer.
On the other side of the rate equation, today?s data revealed another blow to growth from a very different source. In past months, the housing recession and drop in business investment was leaning on the pressure for a cut. With a possible cut in site and growth at four-year lows, economists and dollar bulls were banking primarily on a strong consumer to pick up the slack and keep things in the green. So, when personal income and spending fell short of their marks for May, doubt received a boost. Earnings rose 0.4 percent over the month following the first contraction in 20 months, while spending printed another 0.5 percent move. Keeping the pain on the housing market, a construction spending reading for the same period was reported a 0.8 percent drop in residential investment. This certainly deflated any optimism found on the headline number?s 0.9 percent rise. Ending the week off with a look to activity Monday, the Chicago PMI was a beacon in the fray. Like all of the other major regional manufacturing numbers indicators, this report beat expectations in its June print while holding just below its two-year highs. With the official forecast for Monday?s ISM Manufacturing number looking for an unchanged print, a pleasant surprise may be in the works.
US equity traders were having a hard time holding onto early morning gains as the macro data started to filter through the market. By 16:20 GMT, the Nasdaq Composite was leading a tight pack with a modest 0.17 percent advance to 2,612.76. Not far behind, the S&P 500 was up 0.16 percent at 1,508.14 while the Dow rose 0.13 percent to 13,439.76. Though the broader indices were loosing their lift quickly, there were more than a few outstanding runs from individual firms? that retained their gains. The zero hour on the long-anticipated release of Apple?s iPhone boosted the PC maker?s shares 2.6 percent to $123.68. One of the top gainers for the day was won by a familiar name - Research In Motion. Shares of the mobile device producer surged 20.2 percent or $33.51 to $199.11 after the board reported a 76 percent jump in revenues and a 73 percent launch in profits over the previous quarter.
Perhaps a sign that things are returning to normal, treasuries were on the rise as the dollar and stocks turned off their highs. The ten-year note was working on an 11/32nds advance to 95-23 with a yield quoted 5 basis points lower at 5.056 by 16:20 GMT. At the same time, the bond was quoted 24/32nds higher at 93-30 as its own yield losing 5 basis points to fall to 5.15.