Dollar bears obviously have deep pockets. The greenback was hammered lower throughout the Asian and European sessions as a technical break turned into a momentum move. However, the currency has not lost its luster yet as a mixed batch of data has pulled the unit off its session lows and back within a viable range.
As for price action in the majors, the dollars dive pushed EURUSD up to 1.3555 with little in the way of a retracement. Alternatively, USDCHF clearly breached its well-established trend channel in a windfall drop. When the dollar bid swooped in though, the pair was put into a steep, 120-point rally that erased all of the overnight losses. A weakened dollar opened the British pound up for a 130-point rally of its own that topped out around 1.9890. The pullback in GBPUSD was far more violent, though a close below 1.98 couldnt be mustered. Finally, considerable volatility in the Japanese yen added to momentum in USDJPY. The pair dropped below notable support at 118.50 to 118.20 in the London session before rocketing 135 points higher only to be stopped cold at solidifying resistance at 119.50.
Yesterdays dollar sell off was made with little regard to economic indicators. The same could be said for todays more dramatic move. Though Fridays calendar held the most market-moving reports for the entire week, the steady dollar decline developed throughout the Asian and London sessions, before the data even hit the wires. Even more curious was the fact that the gradual move in the dollar index calmly slipped below the biggest level of support going back two years without triggering greater levels of momentum. On the other hand, while the dollars losses were not influenced by fundamental currents, its subsequent retracement was. The New York session opened with positive showings in both the trade and producer price indicators. Februarys trade balance had the fewest strings attached to its print. The shortfall unexpectedly contracted to $58.44 billion for the month. A few remarkable changes within the component data was a drop Chinese import and foreign oil purchases. No doubt related to the 1.7 percent drop in overall imports as US consumer spending stabilizes, imports from China fell to their lowest levels since last May. This will be particularly well received in Washington DC where a number of Congressman are working to increase tariffs and trade restrictions with the Asian giant in order to right the United States trade shortfall. Petroleum was the other factor of the equation. The value of oil imports fell to $20.7 billion, the smallest notional amount since June of 2005.
At the same time the trade numbers crossed the wires, the Labor Departments second inflation indicator marked similar results as yesterdays import price gauge. Though headline inflation at the factory-level accelerated 1.0 percent for the month and 3.2 percent from the same time a year ago, most of pressure was recorded in the energy complex. When petroleum-related and other volatile products were excluded from the index, inflation actually passed the month unchanged while pulling the annual number back to 1.7 percent. This clearly sets up a trade off for the Consumer Price Index due next week. A pickup in the headline number is expected, though core prices may be far less remarkable. On the other hand, energy prices continue to hover near highs and there are few forecasting a sharp pull back in the months ahead. Therefore, the headline numbers may offer a clearer picture of overall conditions than the usually tracked core numbers. A little later in the day, the University of Michigan released its monthly consumer confidence report to a very disappointed crowd. Economists had expected the sentiment gauge to slip slightly, but instead the market got a bigger drop to 85.3. This was the third monthly contraction and comes on rising energy and food prices that have left consumers with less discretionary income. Though it may not be defining action in todays volatile markets, a drop in confidence can lead to a contraction in spending which could ultimately snuff out one of strongest component of growth in the worlds largest economy.
Stock markets didnt take too kindly to the uptick in factory inflation and drop in consumer sentiment. By 15:55 GMT, the Dow was trading 0.18 percent above yesterdays close at 12,575.72. The S&P 500 was putting in for a modest 0.09 percent advance to 1,449.17 while the NASDAQ Composite slipped 0.05 percent to 2,478.98. And though the benchmark indices were little changed by mid-day, a stocked list of market mover revealed a heightened level of volatility. Propping the Dow 30 in positive territory, shares of pharmaceutical giant Merck surged 8.3 percent, or $3.85, to $50.21. The impressive move began after the firm lifted its profit forecasts for the year due to strong performance across its product lines. Another outperforming blue-chip, McDonalds reported an 8.2 percent jump in sale-store sales last month at the same time issuing a $0.62 per share profit forecast for last quarter. Shares of McDonalds rose 2.2 percent to $47.66.
Despite the considerable pickup in volatility for the dollar, treasury investors were didnt find the same fundamental impetus to move their respective asset. The ten-year note was only 4/32nds lower at 99-00 at 15:55 GMT with a yield of 4.753 that had added 2 basis points. Thirty-year bonds fell 10/32nds to 97-07 as yields grew 2 basis points to 4.928.