Dollar Skirts Disappointing Housing, Sentiment Data For FOMC Event Risk

While there was quiet a bit of activity in the fundamental channels this morning, dollar price action didn?t seem tuned into the same wavelength. With the market?s forecasts for today?s top indicators proving exceptionally accurate, there was little reason to drive big moves before real event risk inherent in Thursday?s Fed rate decision. Price action across the majors was uneventful as range-bound trade fortified the retaining walls and built pressure for the eventual break.

Of all the congestion bands, none was as clear and ominous as the one in EURUSD. Both resistance at 1.3470 and support at 1.3435 were pressured, though today?s data couldn?t generate a genuine break. Mimicking the dollar?s action, USDCHF traced out its 50-point range below 1.2310 for a second day. Though sticking to a 60-point range of its own below 1.2015, GBPUSD was notably still within the bounds of its rising trend channel. It seems 2.0 is key to the pound?s future. Finally, USDJPY was ironically the only major not stuck in a range. A political shake up in Japan led the yen on a consistent 110-point rally against the dollar from yesterday?s intraday highs. The 122.80-low proved was quickly retraced, though it stands as a testament to the fear in the market.
To the untrained eye, today?s fully stocked economic calendar looked like a guaranteed market mover. However, the market held steady through all the major releases, proving the mere presence of event risk isn?t necessarily a trigger for action. The fundamental flow began this morning with the housing theme. The S&P/Case-Schiller home price index started things off with a reading crossed the wires exactly in line with expectations. Economists projected a 2.1 percent drop in prices for the year through April; and that is exactly what they got. So, while prices are contracting at the fastest pace since 1991 and the indicator has put in 17-consecutive declines, traders had already priced in the erosion to growth. The same attitude was taken with the Commerce Department?s new home sales report. Though the report is once again working with negative numbers, the 1.6 percent drop is hardly an alarming number given the trend. Sales of newly finished homes slipped to 915,000 units on an annual basis, which is still well off the low recorded back in March. Furthermore, given the record breaking 12.5 percent jump in buyer activity in April, this correction seems comparatively mild.
Aside from the housing number, the remaining date flow for the session actually provided some level of surprise - albeit mild. The Richmond Fed reported an unexpected rebound in regional manufacturing. For the first time in seven months, factories reported a pick up in activity. New order volume was key to the indicator?s strong showing, though many of the remaining sub-components and outlook numbers crossed the wires with disappointing results. Putting the survey into context of the larger picture, most of the regional reports have printed better-than-expected numbers; so there is nothing new here. The Conference Board?s consumer sentiment survey, on the other hand, did give the fundamental ranks a small jolt. Already expected to have declined this month, the indicator reported a 10-month low 103.9 figure that undercut the consensus. More unusual though was the fact that this decline contradicted a pickup in the University of Michigan?s indicator. This divergence highlights the different weights each group assigns to labor trends - the Conference Board giving it far more importance.
Equities markets were recovering from yesterday?s sharp, late day sell off; though this morning?s macro data did little to ease fears of a Fed Reserve on hold for a long time. By 15:20 GMT, the Dow was leading the weak rebound with a 0.29 percent advance to 13,390.74. The S&P 500 was struggling to keep up with a 0.11 percent pick up of its own to 1,499.35 while the Nasdaq Composite edged higher with a 0.06 percent move to 2,578.64. As the market awaits a number of big earnings releases due after the bell, equity investors occupied their time and capital in the normal operations of a few big market movers. Volatility is still high in the young Blackstone Group market. Fears of tighter restrictions and higher taxes for private equity firms sent Blackstone shares on a 4.5 percent decline to $30.86 - below the IPO price.
Treasury traders were equally unimpressed by the results of today?s economic calendar. The ten-year note was marginally lower on a 1/32nd dip to 95-15 with its yield up a basis point at 5.086 by 15:20 GMT. The T-bond was off 2/32nds at 93-04 though its yield was unchanged at 5.207.