Economic data has once again taken the helm for the greenback. Keying off another packed week of scheduled indicators, a small rebound in the long-standing deficit was played down as more pressing event risk looms just over the horizon.
By mid-day in the New York session, traders cut the EURUSD 90-point run short just below the range high at 1.3045. Plunging off of its own technical top, USDCHF accelerated into a 100-point decline that ended in an eve bottom at 1.2445. Driven by its own news, the British pound dropped 95 points in a little under 15 minutes before 1.94 could step in as immediate support. Finally, the future of the carry seems still in question as the yen produced a choppy, 50-point advance against the dollar.
Though short-term price action seemed to stabilize when the North American crew started to dive into the market, position traders found an active valuation on todays trade report. According to the US Commerce Departments numbers, the monthly trade deficit grew more than expected to $61.2 billion. Taking the move in context, the rise was the first in four months from the lowest level since July of 2005. However, the headline number has long diminished as a market driver as traders broaden their perspectives to the bigger trends in order to smooth out unwanted price fluctuations. Nevertheless, there are a few key statistics which will concern, if not economists, then politicians and local industry leaders. In December, auto imports jumped 7.2 percent to a record $22.6 billion. Also, though the shortfall in trade with China slipped from $22.9 billion to $19 billion, a record $40 billion worth of consumer goods imports will keep aggressive Congressman on the warpath. Perhaps the most important take away from this report is its potential influence on the revisions of fourth quarter GDP. Accelerating to 3.5 percent in the fourth quarter, the quarterly growth numbers are being approached very cautiously as revisions have been quite hearty in the past.
Outside of the comfortable limits of the US data calendar, a few other events were diminishing the sheen of the dollar in the overnight. Last night, headlines splashed an agreement in the six nation talks to put North Korea off of its pursuit for nuclear arms. As the geo-political risk wanes, so does the necessity of using the dollar as a safe haven. Further eroding the dollars appeal Tuesday morning were the strong growth numbers from Europes biggest member nations. With the European regional economy expanding at an impressive 3.3 percent, the international effort to diversify away from the dollar seems to have an encouraging foothold. Looking ahead to tomorrows docket, the real fireworks will begin. Short-term traders will find some satisfaction in the January retail sales report; but all will yield to Federal Reserve Chairman Ben Bernankes testimony due only a short time later.
Equities surged higher at the bell as a few big names took control of the market. By 15:20 GMT, the Dow was leading the pack with a 0.63 percent rally to 12,631.46. Both the S&P 500 and NASDAQ tied for second place with a 0.44 percent move to 1,439.70 and 2,461.04 respectively. Switching from the volume leader board to the headlines, Alcoa shares surged 6.7 percent to $35.10 as the market caught wind of potential bids for the Dow component from Rio Tinto or BHP Billiton. Another blue chip moving on unusual news, 3M shares were boosted after the firm announced its plans to institute a $7 billion buy back of its own shares from the market over a span of 2 years. Share price rose 1.9 percent or $1.39 to $75.98 in the float.
Treasury markets were even keeled through the trade report, as market participants pared exposure ahead of tomorrows Bernanke testimony. The ten-year note was trading 2/32nds off the open at 98-15 with its yield up a basis point to 4.821 by 15:20 GMT. Thirty-year maturity bonds were down 4/32nds at 93-18 at the same time as yields added a basis point to 4.919.