By the morning hours of the New York session, currency traders had few dollar-side fundamentals on which to trade the greenback on. Instead, a number of outside macro events were rolling into dollar selling, while tomorrows retail sales report touts enough event risk to keep bulls hesitant about entering the market.
By the official open of capital markets on the east coast of the US, the majors had already made the bulk of their moves. After basing on 1.3110 for much of the Asian session, EURUSD soared 85 points before loosing its buoyancy just short of the 1.32 level. In a similar fashion, USDCHF showed difficulty with overtaking 1.2355 resistance in three tops before cascading 120 points to test major support. Spurred on by strong data of its own, the Japanese yen pushed over 125 points higher against the dollar after a quick test of 118.50. Finally, GBPUSD broke rank with the only gain for the dollar, which totaled over 180 points peak-to-trough.
Once again, the US economic calendar was offering a slow start to the week with only the governments monthly budget statement available for inspection. However, the short supply in US indicators didnt stunt fundamentally-driven market action traders just had to find the fuel for their trades indirectly. One renewed concern was global financial markets inability to stem is the exit of capital from risky assets. This time, unease seems to be fueled from US. sub-prime lenders whom have stolen the headlines in the major American business journals as rising default rates have generated panic among investors and creditors. This morning, the story has taken on a new air of urgency after New Century the nations second largest sub-prime lender said that it does not have the cash to cover creditors demands for repayment. Though trading has been halted in the companys stock, many equity analysts believe bankruptcy is just a few steps away. Should a company of this size go under, it may encourage a broader liquidation of lending and financial shares that could easily develop into a general risk aversion.
Elsewhere, China was once again triggering moves outside of its own boarders. Early in the Asian session, Peoples Bank of China Governor Zhou Xiaochuan said China needs to restructure and deepen [its] financial markets at a press briefing in Beijing. As has been said in the past, this would entail allowing the markets to play a greater role in setting interest rates, introducing new financial derivatives and eventually relaxing the controls on the yuan. Each of these would be viewed as a considerable step in reducing volatility in one of the global markets riskiest and most popular investment destinations. The G10 put in its own effort to calm global markets. ECB president Jean Claude Trichet said after meeting finance officials that he believes economies are strong enough to whether the recent sharp correction in equity markets.
Looking ahead to tomorrow, the action will begin to heat up. The Commerce Departments retail sales report for February is due at 12:30 GMT; and its importance has been built up among fundamental traders. Officially, economists are predicting a 0.3 percent rise in sales last month; but this projection has its pros and cons. Supporting a modest rebound, gasoline receipts likely contributed to a rise as higher fuel prices lifted the overall value of sales. On the other hand, purchases of autos and consumer goods are expected to sour as poor weather weighs on stretched spending habits. A surprise from this indicator could very well trigger big moves.
The major stock indices were trading back and forth through the morning hours as a number of M&A deals competed with weakness in the lending and housing sectors. By 15:20 GMT, the NASDAQ Composite was the only gauge in the green with a marginal advance to 2,387.87. The S&P 500 saw the biggest decline by the same time in a 0.21 percent decline to 1,399.94 while the Dow was off 0.08 percent at 12,266.47. From Dow 30, shares of Boeing Co. advanced 1.1 percent to $90.47 after it was announced Continental Airlines increased its order for the companys flagship 787s from 20 to 25 planes. In other news, Dollar General rallied 26.2 percent or $4.40 to $21.18 on news private equity firm KKR will buy the firm for $7.8 billion.
Treasuries were able to sustain volatility from Friday as investors weighed in on a report that suggested bonds were pricing in a 50 percent chance that the US economy would see a recession conflicting with Greenspans one-in-three outlook. By 15:20 GMT, the benchmark T-note was trading 11/32nds higher at 100-21 as its yield slipped 5 basis points to 4.542. Bonds rallied 18/32s by the same time while yields slipped 4 basis points to 4.685.