Dollar Stifled By Weak Pending Home And Factory Orders Data

The fundamental weight of the economic calendar’s offerings have tapered off somewhat after yesterday’s market-worthy ISM services report hit the wires. For Tuesday, all of the New York session’s top indicators were either revisions or lagging to previously released reports.

Looking to price action, the greenback was largely mixed in the majors. After breaking in the dollar’s favor over the past few sessions, EURUSD moved into congestion between 1.3135 and 1.3080. Mirroring the inactivity, USDCHF bounced around its own 60 point range while stubbornly holding below 1.2250. The British pound worked up from Monday’s lows around 1.9185, with a ceiling tested at 1.9310. Finally, a break in the seemingly unending yen rally allowed USDJPY to rally 150 points to 116.70 before the pair was relegated to a 50-point range.
Quality over quantity is once again the axiom for fundamental traders. Though this morning’s economic docket tendered more indicators for the ever-evolving valuation of the almighty dollar, each was handicapped in one way or another. Arguably, the greatest potential for market impact rested with the Commerce Department’s factory orders gauge for January. According to the government body’s numbers, new orders received by manufacturers dropped a considerable 5.6 percent – the biggest monthly decline in six-and-a-half years. On paper, such a drop would hit even the most ardent bull; but the market was well prepared for such fireworks. Other January numbers, specifically the ISM’s manufacturing activity report and the government’s durable goods orders gauge, had already desensitized the market with weak readings of their own. Just like the previously released numbers, the broad contraction in demand came as companies attempted to work off excess inventories – especially in the construction and automotive industries. However, under the same reasoning, the stronger than expected reading in the February ISM has signaled to economists that the factory report could post similar numbers the next time it is released.
Elsewhere, the import of the session’s other releases was considerably scaled down. The National Association of Realtors printed a 4.1 percent drop in pending home sales through January. While this particular indicator is seen as a leading indicator since it is based on contract signings, it is considered inferior to new home sales. This relationship is particularly true after new residential purchases dropped the most in thirteen years in its most recent report. On the inflation front, the final reading of fourth quarter nonfarm productivity and unit labor costs roused the steadfast hawks. Productivity, a measure of output per hour from the average worker, slowed from its initially reported 3.0 percent gait to 1.6 percent. At the same time, employee costs for the same period accelerated more than expected to 6.6 percent. Conversely, the labor costs report was considered a one-off, influenced by high bonuses. Another event that should not be overlooked was an interview given by former Federal Reserve Chairman Alan Greenspan. Contradicting current Fed Chief Ben Bernanke’s belief that the economy will recover this year, Greenspan said that he sees a one in three chance that the US economy is heading for a recession following its sixth year of recovery. These eyebrow raising comments follow his warning only a week ago that he could not rule out a recession for the world’s largest economy by the year’s end.
US equities found a solid footing as the benchmark indices instituted a morning climb on the heels of an Asian and European market upswing. By 16:25 GMT, the hard-hit NASDAQ Composite was setting the pace with a 1.12 percent rally to 2,366.79. The S&P 500 was 0.81 percent higher at 1,385.29 and the Dow Jones Industrial Average followed with a 0.6 percent advance to 12,122.59 by the same time. In the headlines, shares of online search giant Google and computer maker Apple rose on comments made by Google’s CEO that the both firms were working on many more projects. Google shares rose 2.0 percent to $449.59 while those of Apple grew 1.8 percent or $1.56 to $87.88. The housing sector, led by Beazer Homes, showed surprising resiliency to the weak pending home sales data. Shares of Beazer rose $0.93, or 2.6 percent, to $36.45.
Following the dollar it its sedate action, Treasuries were little moved by mid-day trade with the Fed’s Beige Book on the horizon. Ten-year maturities were trading 3/32nds lower at 100-30, with yields adding a basis point to 4.507 by 16:25 GMT. T-bonds also slipped 3/32nds to 101-24 while yields added a basis point to 4.64.