Breaks were to abound in the majors, as the slow simmer behind dollar selling through the week finally triggered moves that overtook major technical levels. And, though the session calendar generated a number of key indicators for traders consideration, the sentiment had already been fixed long before the opening bell in New York.
For price action, the EURUSD finally drew more headlines than USDJPY when the pair quickly pushed through 1.3250 resistance on a 115-point move that stopped short of testing highs set back in December. Marking its own technical upset, USDCHF danced around 1.2110 support before sliding to 1.2030. Though not marking new dollar lows itself, GBPUSD broke a range that has been in place since the beginning of the month. The pound drove through 1.9400 in Tokyo session hours and rallied all the way to 1.9510 before retracing most of the move. Finally, USDJPY reversed course from yesterdays highs before plunging 130 points lower to 116.50.
Over the past week, many market participants were disappointed by the reserved reaction by the dollar following some of the economys top market moving indicators. However, last nights action proved that fundamentals are not to be ignored just because they dont shake the markets within 10 minutes of their release. In the pre-North American hours on Friday, the currency market was laden with a number of concerns for the US economy and its currency. Over the past days, weak retail sales, inflation and factory activity gauges have left lent the greenback little fuel for big moves. At the same time, all assets tied one way or another to interest rates have felt the panic spreading from equities as the depressed mortgage sector bows under defaults and credit calls. Analysts, gurus and even former policy officials have weighed in on speculating how wide-spread the pain will be and there seems to be no consensus. One thing is for sure though, developments in the sub-prime market will not be ignored by fundamental FX traders who know the implications of a possible credit crunch on the economy.
Hours after the dollar made its headline move, traders came back to their terminals for the formality of absorbing the days data. The first set of numbers to hit the wires was the consumer price index for February. Interest behind the final inflation number has waxed and waned through the week as both the import and producer price gauges have printed tepid results in their respective releases. Mimicking the import and factory level indicators, the CPI hit the ground with slightly better than expected headline figures and in line core data. Last month, the average price paid for consumer goods grew 2.4 percent year over year, slightly above the 2.3 percent pace predicted yet well below the typical rate in the first half of 2006. When the volatile components were, the gauge held steady at 2.7 percent. Both of these numbers promise little for next weeks Fed gathering. Shirking the lethargy in the inflation report, a measure of industrial production jumped 1.0 percent in February, the biggest pick up since November of 2005 as utility demand spiked with the turn in the weather. Finally, the University of Michigans consumer confidence survey wrapped up the week with neutralizing number that fundamentally balanced the market before the close. Hitting a six-month low, consumer sentiment took a hit in both its current condition and outlook components. A pull back was fully expected as the flux in the weather, rising energy prices and the sharp contraction in equity portfolios unnerved more than a few content Americans.
Stocks were passing through another session of modest volatility suggesting the equities market is returning to normal. By 15:45 GMT, the NASDAQ Composite led the major indices lower with a 0.43 percent drop to 2,368.41. By the same time, the Dow eased 0.32 percent to 12,121.07 while the S&P 500 edged 0.27 percent lower to 1,388.52. With the market cooling, the headlines were once again covering blue-chips and mid-caps alike. Hewlett-Packard was making the news after announcing its plan to buy back more than $8 billion worth of its own shares from the market. HP stock rose 0.9 percent to $40.04. Back on subprime, Accredited Home Lending was looking to avoid the sticky end New Century came to by selling nearly its entire $2.7 billlion loan portfolio through a discount to meet its margin calls. Shares of Accredited surged $2.05 or 21.7 percent to $11.48.
Treasuries weathered the moves in the currency market and later found little reaction to the mixed macro data for the day. Ten-year notes were unchanged by 15:55 GMT at 100-22 yields at 4.536. The thirty-year bond crept 1/32nds higher to 100-29 as its yield was anchored at 4.693.