Dollar Looking Exhausted Without A Strong Confidence Number For Support

It had to come to an end (or at least take a break) eventually. The dollar gave up some of its gains Friday morning even after the University of Michigan?s sentiment survey came in above expectations. If the currency ends on the lam, it would leave the majors in a precarious position since the economic calendar is inordinately barren next week.

For price action, EURUSD put in suspected double touch on 1.3465 before turning back to 1.3525. The dollar?s reversal wasn?t too forceful, since USDCHF held a tight 40-point range just below major resistance at 1.2285. Against the Japanese yen, the dollar was actually pushing higher on a 60-point rebound back towards new the new range high around 121.40. Finally, GBPUSD traded all the way down to 1.97 before the open of US capital markets. When the day?s economic offerings failed dollar strength the pair rallied 80 points to test the Asian session high.
The economic calendar closed out on a quiet note; and the dollar?s steady advance suffered for it. After climbing for two days without any kind of help from the usual top-tier indicators, the greenback was ironically put off its advance by a better than expected University of Michigan number. The preliminary consumer confidence gauge for May climbed 1.6 points to an 88.7 read, instead of slipping 0.9 points as was originally predicted. The pick up was a promising number for the currency and the overall economy since growth has slowed to a four-year low (and is expected to be revised even lower) and domestic consumption remains the central pillar for projections of a soft landing. On the other hand, this is hardly an outsized surprise. Some of the strength underlying the recent dollar pick up may have been towed by speculation of a big upset from the consumer that would allow for more certainty of an impending rebound in GDP. The necessity of a big jump in optimism was even greater with currency confronting major levels of technical resistance across its major pairings.
Another event outside the US boarders that had an impact on the macro scene was China?s decision to loosen its reins on USDCNY exchange rate and to lift its reserve requirement. The People?s Bank of China announced on its website this morning that they were increasing their tolerance for daily yuan fluctuations from the previously stated 0.3 percent band to 0.5 percent. Realistically, this is a small change and miles away from a free-float. However, it speaks volume for politics and international trade. This adjustment by Chinese officials was likely a not-so-subtle way to appease the US before their visit to Washington next week. Since the US levied its hefty tax on glossy paper imports from the East, Congress has upped its efforts to push protectionist legislation through the process. If this modest move helps to quell the storm and lightens dialogue next week, it certainly would be to the benefit of the dollar. Tightening the reserve requirement requires attention of its own. While this could help to smooth over the US row, it was more likely enacted to cool the economy and the surge in local equity markets. As we have seen in the past, China?s efforts to tighten the money supply have caused serious global ripples. It will be interesting to see how the nation?s equities markets respond to the announcement Monday morning to signal what is in store for the carry trade and the rest of the globe.
Equity markets were astir Friday morning as fresh record highs accented the announcement of a few blue-chip M&A deals in the pipeline. By 16:10 GMT, both the Dow and S&P 500 were sharing the lead for market movers with 0.33 percent advances to 13,521.83 and 1,517.73 respectively. The NASDAQ Composite was struggling to pull up with the other two on a 0.19 percent move of its own to 2,544.31. Looking for top-market movers this morning, it was clear that the Dow was supplying more than its fair share of headlines and price action. Tech sector bellwether Microsoft caught the media?s attention with a planned acquisition of internet advertiser aQuantive - the world?s biggest at $6 billion. Shares of Big Blue slipped 0.8 percent to $30.72 as the news circulated. Keeping within the index, but switching sectors, media reports have arisen saying General Electric is close to completing the sale of its plastics group for $11 billion. Shares of GE were up 1.6 percent to $37.12.
Retaining its cautious roots, treasuries were little moved on cross market moves and the modest University of Michigan improvement. The ten-year note was trading 4/32nds off its open at 97-28 by 16:10 GMT with a yield up 2 basis points at 4.770. At the same time, the thirty-year bond was 8/32nds lower at 97-06 on a yield 2 basis points heavier at 4.930.