It has been a steady and profitable advance for the US dollar over the past week; but without the aid of sturdy economic indicators, it would have to come to an end sometime. As the greenback eyed resistance, the lack of data and inflated rate expectations for counter currencies finally broke the bull?s back - and just before the economic calendar is expected to get interesting.
Leading price action, EURUSD made a quick break of its tight overnight range to 1.3415 before reversing course and rallying all the way to 1.35. Producing the same false break, USDCHF ended a quick run to 1.2310 by plunging 60 points. The Japanese yen made its own 55-point rally against the US dollar, but not before the pair hit a new two-month high at 121.85. Finally, a hawkish monetary policy statement from the BoE MPC leveraged the GBPUSD run. Finding a floor around 1.9715, GBPUSD rallied 180 points to stall just below 1.99.
The US economic calendar for Wednesday looked a lot like the dockets for Monday and Tuesday - barren. Perhaps the greatest promise for event risk this morning was in the second and final day of the Strategic Economic Dialogue between China and the US. On the other hand, meetings between two super economies like these are typically political in nature and rarely result in big changes. Keeping with the norm, today?s meeting forged little headway for tense US/Chinese trade relations. US Treasury Secretary Henry Paulson said the talks produced “tangible results,” though no progress was reported on the fronts that FX traders and US politicians are concerned with: loosening the exchange band on USDCNY; further opening the Chinese economy to foreign investment and encouraging consumption among other things. A fact sheet? from the meeting is expected to be released later today. Though, if the report confirms that few of Congress? demands were addressed, the call for further tariffs and trade legislation on Capital Hill may be taken up once again.
Looking back to the economic calendar, there was one indicator that actually made the cut. According to MBA?s weekly numbers, mortgage applications through the period ending on May 18th rose 1.6 percent. While this was a modest improvement over the previous week?s contraction, the dated MBA data from April may be more useful for speculating on the end of week housing numbers. Tomorrow, the Commerce Department?s New Home Sales report is projected to print a modest 0.2 percent increase in sales activity for last month. Similarly, on Friday, the National Association of Realtors existing home sales report is looking at a small change of its own in a meager 0.1 percent contraction. Clearly, these are modest expectations - the kind that are conducive to big surprises and jumps in volatility. However, if they data is as tepid as economists suggest it will be, then ranges may consolidate into the extended Memorial Day weekend.
A healthy mixture of corporate earnings reports and fresh deal news put the major equity indices back on track for new record highs. Taking the lead by 15:15 GMT, the S&P 500 was up 0.38 percent at 1,429.89. Tagging along for the ride, the Dow rose 0.35 percent to 13,587.57 while the NASDAQ Composite followed up on its strong move yesterday with a 0.28 percent advance to 2,595.24. It seems all the deal action on the day has connections to Alcan. Alcoa shares rose 4.6 percent to $40.75 after Alcan rejected its $27 billion hostel bid. However, suitors aren?t done wooing the aluminum producer. According to reports, BHP Billiton is in early stage talks with Alcan. BHP?s shares gained 3.0 percent to $52.25 on the news of Alcoa?s rejected bid. Sweeping up the tail end of the earnings season, Target?s numbers have salvaged some confidence for the retail sector. Earnings of $0.75/share beat expectations and helped lift its shares 3.0 percent to $59.79.
Treasury yields continued their slow crawl to new highs Wednesday morning as traders await their first taste of macro data this week to guide rate forecasts. By 15:15 GMT, the T-note was trading 3/32nds higher at 97-11 with a yield 1 basis point firmer at 4.839. The thirty-year bond slipped 5/32nds to 96-09 as its own yield added a basis point to rise to 4.991.