Dollar Retraces Some Of Its Losses On Strong Housing Starts And Production Numbers

Dollar bulls were certainly dominating the majors through the US session, though the few economic indicators scheduled for release this morning cannot claim sole responsibility. The mixed batch of housing data and the better than expected factory activity number were released well before the dollar found its bid across the majors.

Whatever the impetus for the dollar?s rally, the move brought the currency right back to major resistance levels across its liquid pairings. EURUSD tumbled nearly 110 points from its overnight highs to stall just above the psychological significant 1.35 level. The pullback against the British pound pulled GBPUSD over 100 points off new resistance to bring spot within stones throw of the major floor 1.9750. Since the more appealing carry trades didn?t lose much ground in yesterday?s dollar selloff, this morning?s advance led to notable breaks. USDJPY has steadily advanced nearly 60 points since the Asian session. This gradual move easily cleared the 120.50 spot has flirted with over the past week. Finally, the greenback climbed over 100 points against the Swiss franc to easily carry the pair to a new monthly high.
Though there was no lack of fundamental fodder Wednesday, there was certainly a lack of consensus for market direction. The housing market was fully covered with today?s economic offerings. The morning began with the Mortgage Bankers Association?s weekly applications number. A fitting start to the day since it is among the timeliest housing indicators, the 0.8 percent drop in the indicator after three consecutive increases was not encouraging. An hour-and-a-half later, the fundamental outlook for the sector was not much better. Building permits for the month of April dropped 8.9 percent to a near-decade low 1.429 million annual pace. On the other hand, the comparatively lagging starts report for the same period actually rose for the third consecutive month 2.5 percent to a 1.528 million pace. Ultimately, this does not fundamentally alter the outlook for the housing market. Inventories are still bloated and sales have cooled as buyers wait for prices to drop. At the same time, this data supports the notion that the sub-prime credit crunch from two months ago is not spreading to other mortgage categories.
Not long after the housing numbers blurred the dollar?s fate, the factory activity gauge for April once again clarified the market?s lean. Though it has hit the wires in the midst of the regional reports for May and well after the ISM report for the same period, the industrial production indicator?s 0.7 percent rise offers another reason to believe manufacturing will contribute to growth in current quarter. Near the beginning of the year, the factory sector had actually contracted for a few months, joining the housing market as a weight on overall economy. However, now that inventories have been emptied and sales are picking back up, activity has rebounded. Looking ahead to tomorrow?s calendar, there are few market-movers in the wings. The leading indicators index from the Conference Board may levy some interest as it has struggled in recent months and consistent weakness would promise further contractions in the quarterly growth numbers. Also taking a prominent position on the docket is the Philly Fed survey for May. Given the improvement in the Empire read last week and the rebound in industrial production today, the market?s will be looking for some consistency from the Philly area.
Equity markets were struggling to retain their bullish resiliency Wednesday morning, though the factory activity report was certainly encouraging bulls in some sectors. By 15:15 GMT, the S&P 500 was the only index reporting a gain with a marginal advance to 1,501.90. The Dow was off yesterday?s close on a 0.12 percent drop to 13,367.34 while the NASDAQ Composite slid 0.21 percent to 2,520.01. Among the market movers list, there was deal chatter and earnings forecasts abound. The biggest headline was probably the speculation over a possible break up of financial giant Citigroup. The Dow-component saw its shares rise 3.7 percent to $54.72 after the public learned Edward Lampert, chairman of Sears Holdings, bought 15 million Citi shares. Some analysts believe this is a prelude to a piecemeal deconstruction of the conglomerate. Elsewhere, chip-maker Applied Materials forecast flat sales for its fiscal third quarter, sending its stock plunging 5.5 percent or $1.08 to $18.70.
Once again, treasuries were unimpressed by the mixed economic picture as it would likely leave the Fed?s outlook on interest rates unchanged. The ten-year note was unchanged at 98-13 with a yield at 4.700 by 15:11 GMT. The longer-termed bond was only 2/32nds higher at 98-03 as its own yield held steady at 4.871.