Dollar Rebound Accelerates On Strong Wholesale Numbers

The dollar was able to gain ground this morning ahead of the event-risk laden FOMC decision with the help of a surprisingly strong wholesale sales report. And, headway is certainly what the benchmark currency needs to weather an economic calendar that is expected to be very unfavorable for bulls for the remainder of the week.

For buffer room, EURUSD put considerable distance between spot and the 1.3680 high after the pair dropped 100 points from overnight highs to 1.3520. Catching the draft off of the euro, USDCHF was lifted 80 points to 1.2195 to test the boundaries of the 1.21 to 1.22 range. Breaking away from its standard behavior, GBPUSD wasn?t the volatility leader for the session as its own decline measured only 70 points for the dollar?s benefit. Finally, USDJPY didn?t have the same pep in the overnight that the other majors did. Before finding its own dollar bid during the New York session, the pair actually fell 65 points to 119.50 and break a three-week trend channel.
For traders who were expecting the currency market to hold its composure until tomorrow?s Federal Open Market Committee decision and statement, this morning?s price action came out of the blue. However, a well-placed surprise from the economic calendar (even from a second tier indicator) would certainly be able to overcome expectations surrounding tomorrow?s Fed activity. Though any central bank meeting touts some degree of risk, tomorrow?s gathering is expected to result in very few changes. In contrast data released today was diverging far from the official consensus and in turn sent traders scrambling to revise their estimates for Friday?s retail sales report. According to the Commerce Department, wholesale sales jumped 1.8 percent in March - the most in 18 months. Breaking the headline figure into its components, the pickup was realized in both durable and non-durable goods. In contrast to activity in the previous months, petroleum purchases had a very limited impact on overall sales through its 0.8 percent rise following an 8.8 percent surge. In fact, when the energy component was stripped from the data, activity actually improved with a 1.9 percent performance.
Correlating the increase in wholesale sales to the retail indicator due later in the week is somewhat unreliable. Friday?s sales report is for the month of April, compared to today?s March number. Furthermore, demand at the wholesale level is not directly linked to consumer spending further downstream. Business spending and investment is certainly another component in today?s report. At this angle, today?s numbers are still encouraging for business activity though. In the months past, factory activity slowed considerably as production managers worked to cut costs and sell off excess inventory. However, in March, wholesale inventories rose a modest 0.3 percent. When measured up to the rebound in sales, this suggests a change in trend for production may be underway. Turning back to speculation on the retail report, the better forecasting tool may be today?s Redbook report. The gauge measured a 4.1 percent drop in sales over the four weeks of April.
US equity traders may be putting the market?s record winning streak in jeopardy as long as they keep selling shares. In another way of saying we are in a bull market, the Dow has risen 24 out of the last 27 sessions - its best performance since 1927. By 15:35 GMT, the S&P 500 was pacing the broad market?s declines with a 0.43 percent drop to 1,502.96. The Dow was off 0.42 percent at 13,257.63 while the NASDAQ Composite lost 0.39 percent to trade at 2,561.00. In contrast to the last few trading sessions, the top movers lists found fewer big M&A deals and earnings announcements. One strong blue chip performance was the 2 percent bounce in Hewlitt-Packard shares to $44.68. Traders boosted the stock after the firm lifted its financial outlook for the second quarter. Management raised its revenue forecast to $0.64 to $0.65 per share on the basis of strong personal systems group and server business. Elsewhere in the tech sector, Motorola slid back 2 percent to $17.72 after a survey showed billionaire Carl Icahn did not win a seat on the board.
Today?s sales data was deemed too indirect to have any effect on treasuries before tomorrow?s rate decision. The ten-year note was trading only 1/32nd higher at 100-00 at 15:30 GMT as its yield held steady at 4.622. Bonds slipped 2/32nds to 99-13 while yields were rooted at 4.787.