Dollar On A Slow Rise As Data And Global Tensions Improve

As market participants in the western world leave their desks for their extended Easter holiday, those traders holding their posts will be left with depressed dollar liquidity and unpredictable volatility. By Tuesday morning in New York, the unusual conditions weren’t yet put to the test as a pending home sales report and promising remarks coming out of the Iran/UK standoff allowed the greenback settled into a slow advance.

Following through with the staid action in the Asian and European sessions, EURUSD held its modest 35-point range below 1.3385 as the US hours wore on. Working off of carry trade winds, USDCHF saw more one-sided action as the pair worked its way off of 1.2145 lows to test 1.2200. A little livelier, GPBUSD felt pressure to run stops as traders moved the pair above 1.9800 by 25 points before pulling it back to 1.9740. Perhaps the most technically significant move for the day went to USDJPY which cut through the 118.50 resistance on a 120 point move that was recently hovering just below 118.90.
Market-moving indicators were in short supply this morning as only the pending home sales report hit the wires by mid-day trade. The second National Association of Realtors’ report to come into the currency market’s crosshairs in the past weeks, the February number beat expectations with a 0.7 percent advance. However, the indicator itself has done little to illuminate the direction in which the housing sector is moving. On the one hand, the report is a promising sign for economists since it is a leading indicator for sales of previously owned homes. The pending gauge records sales when a contract is signed instead of when the deal is closed. Alternatively, the leading report marked a much more conservative increase than the NAR’s existing report which hit a three-year high for the same month. What’s more, the pending indicator is still considered a lagging housing report compared to building permits and new home sales figures. Since most of the February numbers have not recorded the effects of the sub-prime fiasco, most market participants are more comfortable in remaining cautiously bearish. Even the NAR’s chief economist, David Lereah, cautioned that initial signs of underlying stability would require “another month or two” before they can be confirmed.
Elsewhere on the calendar, March vehicle sales looked to influence more than one US financial market. With the US auto sector falling back on divestures and dear cost cutting efforts, it is safe to say that it remains one of the biggest trouble areas for the world’s largest economy. According to Bloomberg’s consensus, economists expect sales to fall slightly to an annual 12.7 million vehicles domestically. Moving beyond the docket, international investors were tuned into the cooled rhetoric from the UK and Iran over the 11-day old prisoner situation. Just yesterday, Iran’s Supreme National Security Council chief Ali Larijani said that he saw “no need for any trial.” The nation’s vice president made similarly disarming comments. On the other side of things, UK Prime Minister Tony Blair has been aggressive in laying out a time table for negotiations, but has done so using passive language. He said the next 48 hours would be ‘critical,’ though he wanted to keep dialogue ‘peaceful and calm.’ The tell-tale sign that international markets are relieved by the efforts was the sharp pull back in energy prices. The active WTI crude contract in the US dropped 2.4 percent to $64.35 on the news. As time burns on, the currency market will continue to keep an eye on the UK/Iran situation; but unless there are any fresh developments, the most pressing event risk comes from tomorrow’s ISM services indicator and the front-running ADP employment gauge.
Equities broke higher early Tuesday morning as falling energy prices drew side-lined bulls back into the market. By 15:35 GMT, the NASDAQ Composite led the rally with an impressive 1.22 percent advance to 2,451.71. Following up with strong gains, the Dow was up 0.9 percent to 12,494.21 while the S&P 500 rose 0.85 percent to 1,436.61. In such a buoyant day for the indices, it takes a considerable move from an individual firm to lead the pack. The 21.5 percent surge in Accredited Home Lenders was just such a move. The sub-prime lender saw its share price gain $1.82 to $10.30 after reporting it had received financing from a commercial bank and confirmed that it had obtained a loan from an investment bank. Elsewhere, blue chip Apple saw its stock rise $1.41 or 1.5 percent to $95.06 despite accusations from the European Commission that the firm was breaking anti-trust laws by limiting music downloads in different countries.
Treasuries were moving lower after the modest improvement from the pending home report. The ten-year note was trading 4/32nds lower at 99-23 by 15:35 GMT as its yield tacked on 2 basis points to 4.658. Bonds were off 3/32nds at 98-17 while yields advanced a basis point to 4.843.