Little was happening on the dollars economic calendar Wednesday, but that didnt keep traders from bidding the currency against most of its liquid pairings. With outside events like the World Economic Forum and last nights State of the Union setting the tone for the greenback, the need for strong indicators to keep the dollar moving ahead has grown.
In EURUSD, the proximity of 1.3050 proved a repellent as a 100-point turn developed. Following suit, GBPUSD continued the retracement initiated yesterday, pulling the pair down 185 points to 1.9650. Meanwhile, the dollar returned to its range against the Swiss franc as the broad dollar pick up won an 85-point advance to 1.25. Finally, the carry story has hiccups, as USDJPY dropped 120 points in the overnight, only to produce a swing higher that was once again driven lower.
Pulling back from the action in the majors today, it was hard to pinpoint a single macro economic event that could be labeled the catalyst underlying it all. From the data coffers on the US side, there was only the weekly MBA mortgage applications figure. According to the numbers, mortgages for refinancing and new purchases dropped 8.4 percent through the week ending January 19th. This was simultaneously the biggest slip in a month and the second consecutive contraction. Typically, this indicator would fall on deaf ears when it is not producing a record, but the currency market paid a little more attention today. With existing home sales due tomorrow and new resident sales the following day, the weekly mortgage numbers could act to dampen or leverage the reaction to the more newsworthy gauges. Recently, the housing market has shown signs of life as periphery indicators offer initial signs of a bottom. Purchases of new and previously owned homes grew in their previous reports. Furthermore, the December print on housing starts, permits and the January NAHB Index all graced the market with stronger than expected readings.
Outside the confines of the closely monitored US calendar, there were a few unusual events putting the dollar in motion. Holding over from Tuesday evening, North American markets had their first chance to value the Presidents State of the Union address. While most of the comments were not particularly revelatory for the currency market, a few issues did rouse some interest. Perhaps most important was the confirmation of the Presidents plan to double the US Strategic Petroleum Reserves by 2027. Directly, this would help the nation in the long-run as Americans would have a little over 90 days worth of energy on hand should the foreign tap be completely shut off. However, for the short-term, a renewed demand for oil from the US government mixes with practically the same announcement coming out of China and a turn in the weather. Combined, these factors drove oil beyond $55 per barrel and provide a very real pressure for the US economy. Bring the diversification trend back to life, Kuwaits Finance Minister recently commented on his unease over the volatility in the US dollar. This has led the FM to consider a shift to a basket rather than holding only dollar assets. Finally, the World Economic Forum is underway. Nick-named Davos for the Switzerland resort the forum is held, the meeting of financial heads, politicians and academics has already addressed a number of interesting topics. One thread that will be particularly interesting for dollar bulls to keep track of is whether or not global growth is decoupling from the US economy. Should this be the consensus, a greater desire to diversify among central banks and a general shift away from the greenback.
A strong rebound finally developed in the equities market. By 17:30 GMT, the deeply-depressed NASDAQ Composite led the advance with a 1.2 percent rebound to 2,460.66. Afforded some distance, the S&P 500 Index trailed with a 0.49 percent rally to 1,434.93 while the Dow rose 0.41 percent to 12,585.00. Keeping earnings season alive, AT&Ts wireless unit, Cingular, printed better than expected quarterly numbers. In response to the news, AT&T shares rally 3.9 percent or $1.39 to $36.75. Leveraging much of the strength in the overall tech sector, Yahoos 8 percent advance to $29.13 was also grabbing headlines. Shares of the search engine firm unveiled new search ad technology that it has dubbed Panama.
Though outside factors were able to light a fire under the dollar and stocks, treasuries were treading water by 17:30 GMT. The ten-year note was unchanged at 98-18 with yields at 4.808, while the 30-year bond slipped 1/32nd to 93-23 as its own yield held steady at 4.908.
