The mixed sentiment that developed from yesterdays market-moving indicators looked to hold through to the end of the week. With volatility tracking lower, the majors settled into the tightest ranges in days, but not before a few crosses marked distinctive levels. For the euro, an overnight a bullish move in the Asian session that was seconded by another in London hours drove the currency to a high at 1.2900 against the greenback.
Such a significant level of resistance held well in the low volatility conditions as the pair proceeded to consolidate above 1.2850 into the close. With most of the news for the last days coming out of the Far East, the Yens modest 50-point range around 117.30 support seemed unusual. Having picked up bigger moves than the euro in the past few weeks, the Swiss fell in line by making its own two-week low just below 1.2350 before making a very gradual progression back up to 1.2400. Finally, the GBPUSD was the only active pair this morning with a 110-point rally to win a temporary 18-month high at 1.9180.
Reverting back to yet another session without a remarkable fundamental release in site, market participants were left to a smattering of comments and speculation for the coming weeks calendar to determine direction. Though the overnight, dollar sentiment was firmly in the bears hands with the PBoC Governor Zhou Xiaochuans words ringing in many traders ears. Zhou said at a conference in Europe yesterday that the Chinese central bank has a clear diversification plan drawn up for the next few years which is centered around moving away from US assets. Though comments have been released to this effect before, these were the most straightforward officials can seem to be without providing a timeline. Other central banks in the Middle East and Europe have announced similar intentions in the recent past; but with an estimated $1 trillion in reserves, a substantial diversification from China could depress the greenback as these plans begin to play out.
With less volatile results, Chairman Ben Bernanke had also stepped up to the podium this morning during a discussion with ECB President Jean-Claude Trichet, BoJ Deputy Governor Kazumasa Iwata and PBoC Governor Zhou Xiaochuan. Conversing on the finer points of central bank policy, the head of the Federal Reserve steered clear of making any specific comments on forth coming policy. Instead Chairman Bernankes comments centered on playing down the correlation between monetary growth and economic variables like inflation and economic growth. Interestingly enough, the ECB President Trichet disagreed, citing a long-term link between inflation and monetary development that has added to speculation that the European central bank is holding to its characteristic transparency and looking ahead to another rate hike. With the usually slow period almost over, traders are already looking ahead to next weeks agenda. The first few days of liquid trade will find the producer price index, retail sales and Empire factory gauges ready for assimilation. Then, moving over the hump, the consumer price index, TICS and housing starts will take over as the engine for the dollar. With all these indicators in the wings while the majors hover at big levels, much needed volatility may be on the horizon.
Equities markets passed through another mixed day of back and forth trade around opening levels. By 16:55 GMT, the Nasdaq Composite was the only index in positive territory on a 0.2 percent advance to 2,381.45. The S&P 500 was only marginally lower at 1,377.80 while the Dow slipped 0.1 percent to 12,089.78. Since Disney reported fiscal fourth quarter earnings after yesterdays market close that had more than doubled expectations, expectations for a big mover were high. However, plans to raise capital spending and last minute analyst revisions to forecasts dulled the positive news and shares of Disney actually dropped $1.30 to $32.28 on a 3.9 percent move. More straightforward, third quarter net income of $4.22 billion for AIG Inc. boosted shares 2.6 percent for a $1.75 rally to $69.79.
Treasuries were looking to register their biggest weekly gain in over a month as the Democratic victory in congress inflated expectations that the government would curb spending and trim new debt auctions. The ten-year note was bid 8/32nds higher to 100-12 by 16:55 GMT with yields edging 3 basis points lower to 4.578. T-bonds were quoted 20/32nds higher at 97-00 with its own yield 4 basis points off at 4.689.
