Dollar Stalls In Dangerous Territory

The fundamental calendar has left the US dollar to drift against the revived currencies of the G10. With only second and third tier indicators filling out the coffers for the rest of the week, greenback bulls will have to position off of unforeseen events or cross currency data to generate momentum – a risky proposition since many of the majors are testing big levels.

For EURUSD, that level is the 1.3670 high put in back in the December of 2004. Spot continued its slow approach of this level, but price action on the quiet day today kept things in a 60-point range below 1.3620. Dollar weakness translated to a new four month low against the Swiss franc, a distinction won when USDCHF dropped quickly below 1.2030. After the big rally Tuesday that pushed GPBUSD above 2.0, bulls looked to push the pair the last few steps beyond 2.01 and in turn make history with a new 26-year high. Finally, even the carry trade, the last bastion of dollar buying, lost its appeal as USDJPY lost another 80 points to bring the two day total to 180 points.
From the economic calendar, the only noteworthy indicator available was the Mortgage Bankers Association’s weekly applications data. According to the group’s numbers, total applications fell 2.5 percent through the period ending April 13th. Including today’s number, mortgage filings have fallen five weeks in a row. The last time, the MBA’s data has shown such a consistent downtrend was in May and June of 2004. Adding to the concern, the less-volatile four-week average for the applications index dropped to 406.1, only slightly above the average for the fourth quarter of 2006. Any way this indicator is cut, it offers little support for the weakened housing sector. And, in compared to the monthly sales and construction gauges that draw so much attention, the weekly applications reports are far more prescient. Not only are the numbers more timely, but the mortgage process is upstream to building and sales. If home loan applications continue to slide due to increased regulations and requirements following the sub-prime upset, then the broad housing sector may revive its declines.
Looking ahead to tomorrow, there are releases that will generate interest on their behalf. The morning will begin with the first-time jobless claims for the last week. Economists expect claims to dip 22,000 to 320,000, though such an improvement wouldn’t fundamentally change payroll numbers. However, after the better than expected print in March NFPs, any bullish employment data would help to build generous speculation for April’s figure. A little later, the Philly Fed factory survey will mark the fundamental highlight of the day. The manufacturing sector has flirted with recessionary readings in the past few months; and any sign of improvement or deterioration could clear the market’s outlook for the nationwide ISM release. What’s more, after the small change in the Empire activity report, a surprise showing in the Philly number could pick up volatility on an otherwise quiet session.
With the exception of the tech-heavy NASDAQ, the broader equity indices were little moved as investors sought out big upsets in earnings numbers to recharge waning bullish convictions. By 15:00 GMT, the NASDAQ Composite was 0.28 percent in the red at 2,510.02. At the same time, the Dow and S&P 500 Indices were sharing 0.05 percent dips to 12,766.29 and 1,470.76 respectively. While traders have yet to see the earnings report that drives the market through record highs, the numbers from financier J.P. Morgan & Chase was certainly encouraging. Shares of J.P. Morgan rose 4.0 percent to $52.50 by means of an earnings report that soundly beat the Street’s estimates, an announcement of a $10 billion stock repurchasing plan and a 12 percent increase in the dividend payout rate. The blue-chip tech firms on the other hand struggled with their own quarterly numbers. IBM shares dropped $2.50 to $94.62 after a downgrade shifted the scales on an inline earnings number. Search engine giant Yahoo released first quarter earnings of $0.10 per share, below the $0.11 expected. The miss unsettled shareholders as they drove the stock 11.7 percent or $3.77 lower to $28.32.
Treasury traders had little more to go on than those in the currency market; so the disappointing CPI numbers released earlier in the week were recycled to revive expectations of an eventual rate cut. The ten-year note was up 7/32nds at 99-25 by 15:00 GMT with a yield off 3 basis points at 4.652. At the same time, the bond was 12/32nds higher at 98-29 as its own yield slipped 3 basis points to 4.818.