Just when it was looking like the dollar would close the week without a fundamental driver for long-term forecasts, today?s data lit up the wires. Among a wide breadth of releases, a big turn in new home sales led the fundamental charge by propping up the economy?s worst performing sector and brightening the outlook for growth.
Despite the bullish momentum today?s releases provided the US currency, price action was relatively reserved. Retracing yesterday?s sharp rally, EURUSD pressed another 40 points lower to put in a double touch of 1.3415 support. Wednesday?s top mover, GBPUSD, found little direction today as it carved a 60-point wide range just below 1.99. The dollar bid following the release of the housing number carried USDCHF to 1.2315 though the rally was short lived and the pair turned back to the chop that has defined price action for most of the week. USDJPY finally joined the other majors in taking its cue from the greenback. The pair was rallied 40 points in the dollars favor during the data flow this morning before quickly turning to 121.25 support.
Though the dollar was back on track for slow appreciation, the fundamentals carrying the session were volatile. In the overnight, a bullish tone was taken on the US currency in reaction to comments made by former Fed Chairman Alan Greenspan and a report released by the OECD. Greenspan delivered an ominous forecast yesterday when he said in one of his speeches that he feared the Chinese stock market would suffer a dramatic contraction? in the near future. The global risk aversion that would likely result from such a shake up would encourage flight to quality and repatriation, both of which being beneficial to the dollar. A little more specific to the dollar, the OECD?s biannual Economic Outlook suggested the Fed should hold off on cutting the benchmark lending rate until early next year due to high inflation in the US and around the globe.
When US liquidity came on line, traders were fully prepared for uneventful releases from a few big market movers. The biggest surprise from the calendar this morning was the 16.2 percent jump in new home sales last month. Not only did this blow the 0.2 percent consensus out of the water; but it was also the biggest monthly increase in sales since 1993. The sharp increase in volume is being attributed to lower lending rates and a solid push from developers through incentives. However, neither of these factors was anything new. Instead, the deciding aspect seems to be the equally massive 10.9 percent plunge in the average sale price - the biggest contraction since the early 1970s. Now, the market will seek confirmation from future New Home Sales and other related housing reports to see whether the sharp price drop has definitely jump started a rebound in the beleaguered market. Working against this effort will be the additional burden of tighter lending restrictions that were put in place because of the high number of defaults in the sub-prime sector.
Also from the Commerce Department this morning, the durable goods report for April was far more neutral. Headline orders printed below expectations with 0.6 percent growth, though the less volatile ex transport measurement surpassed its own consensus on a 1.5 percent increase. Altogether, this was the third positive print for the headline number and an encouraging sign that production and business investment was rebounding after firms spent two quarters trimming down bloated inventories. Indeed, the non-defense capital goods excluding aircraft component (a proxy for business investment) grew for a second month. The final report that was buried in the fray, but which will be important for speculating on NFPs next week, was weekly initial jobless claims figure. Fist time filings for the week ending May 18th bounced back above the 300,000 level, though the closely followed four-week moving average went on to hit a low more than a year old.
US equities surged to new highs on the morning?s macro-drive, though the exuberance quickly dried up as cautious investors weighed the promise of growth on strong houses against the event risk scheduled for next week and the low volatility going into the holiday weekend. By 15:10 GMT, the Dow was the only indicator still in the green with a 0.11 percent advance to 13,541.09. At the same time, the S&P 500 was down 0.17 percent to 1,519.76 while the NASDAQ was 0.46 percent off its open at 2,565.10. Acting as an anchor for the volatility on the day, GM shares were steady in their 1.0 percent decline to $31.12 after filing a report with the SEC stating that the firm has a $7 billion exposure to helping Delphi emerge from bankruptcy. Boeing, another Dow component, was working on its own 2.6 percent advance to $98.05 in the wake of reaffirming its 2007/2008 earnings forecasts.
Treasuries finally had the reason to move this morning as the improvement in sales and durable orders supported expectations that the Fed would remain on hold for the rest of the year. The ten-year note was 8/32nds higher at 97-01 with a yield 3 basis points light at 4.879 by 15:10 GMT. At the same time, the thirty-year bond was off 11/32nds at 95-23 as its yield rose 2 basis points to 5.028.