Dollar Little Moved With Data And The Promise Of Renewed Trade Debate Around The Bend

The dollar traced out its second session of tight ranges in the majors as market participants dismissed low level economic indicators to prepare for tomorrow?s action. With a retail sales indicator, the semiannual report on foreign exchange policy and a new bill on trade policies all expected tomorrow, there is a lot on dollar traders? plates.

Setting the scene for a possibly volatile outcome to tomorrow?s fundamentals, the EURUSD has gradually slipped 45 points since the Asian session to draw the pair only 10 points away from 1.33 psychological support. The British pound was outpacing the greenback as the pair skipped below resistance at 1.9750. The carry appeal in USDCHF was clearly growing as the pair climbed to a nearly 4-month high 1.2430 with few technicals overhead. And, though the market was plowing capital into the Swissie-backed carry, USDJPY was still having trouble pushing higher. A 35-point band capped activity below 121.85.
Once again, the promise of big name events and indicators scheduled for a later date was keeping the dollar anchored. However, the observance of event risk for Wednesday didn?t mean there was nothing to take note of on today?s calendar. For indicators, the Redbook and IBD/TIPP Economic Optimism reports were giving up to date reads on two key areas of the economy. With the government?s monthly retail sales report due tomorrow, the weekly Redbook Research indicator has taken on a greater level of importance. Sales in the week ending June 12th dropped 1.0 percent from a month ago. This tarnished a four-week trend of strong, positive numbers. More importantly though, its historical performance recalls the average 2.3 percent increase per week through May - the period that was measured by tomorrow?s retail sales report. The bigger number for the day was the sentiment indicator. Coming out well before the University of Michigan or Conference Board?s confidence surveys, the IBD print for June climbed for a second month by 1.1 percentage points to 49.1. A number below 50.0 indicates overall pessimism. Regardless, the month-over-month improvement bodes well for spending this month and the months ahead.
Aside from the few data points this morning, the headlines were grabbed by Treasury Secretary Henry Paulson?s comments following a trade conference. With the Treasury?s economic report and a new trade bill scheduled for release tomorrow, Paulson took the opportunity to stress dialogue to remedy trade disputes rather than pursue a protectionist agenda. In regards to the likely heavy-handed tone of tomorrow?s proposed legislation, the Treasury Secretary said he and the senators have ‘a similar motive, a singular objective,? though he believes more would be accomplished through ‘direct discussions and negotiations, not through legislation.? Things may get a little hectic tomorrow, should there be surprises on the economics and policy fronts. Retail sales and import inflation will dominate the economic calendar; but the activity in Washington is the bigger question mark for FX markets. The Treasury?s semiannual report on international economics and exchange rate policy should retain language that suggests the China?s currency is artificially low; but will likely fall short of labeling the country a currency manipulator. Greater speculation surrounds the trade bill that Senators Schumer, Graham, Baucus and Grassely are expected to introduce just hours after the Treasury statements sweep the headlines. It will be interesting to see if the congressmen give any weight to progress with China so far or if stay on the path towards further tariffs.
Equities markets were threatening to revive last week?s slide as the benchmarks slowly reached into the red with higher yields strangling earnings expectations. By 15:45 GMT, the Nasdaq Composite?s 0.43 percent slide to 2,561.17 was the biggest move among the major indices. The Dow followed up with a 0.33 percent drop to 13,380.26 while the S&P 500 lost 0.29 percent to trade at 1,504.70. From the top movers list, the big names were once again dominating with corporate news. Texas Instruments led the bears with a 1.7 percent contraction to $35.18 after management lowered the top end of its second quarter forecast numbers due to weak wireless device and calculator sales. The finance sector was propped by Lehman Brothers? strong earnings report. Lehman shares jumped 2.0 percent higher to $77.21 on the news of a 27 percent jump in earnings for the first fiscal quarter.
The march higher in treasury yields seems relentless. With bets on the Fed?s next move changing, treasury bears that were on the sidelines are now reaping the benefits of their long-term outlook. The benchmark ten-year note was 12/32nds off the open at 94-19 at 15:45 GMT as its yields climbed another 5 basis points to 5.202. The longer-dated bond was off 27/32nds at 91-18 while its own yield grew 6 basis points to 5.317.