The US dollar experienced sharp retracements on Tuesday, falling more than 1 percent against majors ranging from the Canadian dollar to the British pound. Meanwhile, the Japanese yen ended on a mixed note as many of the yen crosses consolidated below their recent highs, which is exactly what we’ve seen in the equity markets. Indeed, the DJIA was unable to break above resistance at 8800 and closed down 1.4 points at 8763.06 while the S&P 500 tested yesterday’s high of 946, but backed off and closed up 3.3 points at 842.43. Looking to the economic data of the day, the US Commerce Department said that wholesale inventories tumbled for the eighth consecutive month in April at a rate of -1.4 percent as businesses anticipate further declines in demand. In fact, sales fell a slight 0.4 percent during the same period, and the reduction in supplies helped bring the inventory/sales ratio down to 1.31 from 1.32. That said, this report is quite lagging, and as a result, wasn’t very market-moving.
Instead, news that ten US banks, including Goldman, Morgan Stanley, JPMorgan, American Express, Northern Trust, BB&T, State Street, US Bancorp, Capital One Financial and Bank of New York Mellon, would repay TARP funds totaling $68 billion helped to lift risk appetite. Treasury Secretary Timothy Geithner noted that repayment was an “encouraging sign of financial repair,” and the rise in equities suggested that traders believed the same.
On Wednesday, the Federal Reserve’s Beige Book report will be released and is likely to reflect much of the same thing we’ve seen in recent months: weak consumption, slow manufacturing conditions, a depressed housing market, deteriorating labor markets, and downward price pressures. That said, any hints of optimism or “green shoots” could offer a boost to investor sentiment, while a repeat of past reports should impact FX trade too much.
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