With a monetary policy meeting and trade account release scheduled for tomorrow, trading was thin through the New York session. Looming event risk didnt completely take the steam out of the currency markets though as a number of releases on and off the radar kept valuations on the move.
Representing the majors since the open of the weak, the EURUSD marked a low early in the Asian session 1.3125 but gradually found its way into an anti-dollar cross current that pushed the pair 135 points higher. The British pound pushed 130 points higher on its retracement against the dollar, just short of the 1.96 figure. For the Swiss franc, a slow 95-point move against the dollar had also brought up a significant psychological level in 1.20. Finally, the Japanese yen was the last to follow through with the dollar selling, after breaking down on a touch of 117.25 resistance when spot was well into New York session.
Though the tier one economic releases were in short supply this morning, there seemed to be a reason to sell dollars for everyone. Once Asian, European and North American liquidity were all on line, the first order of the day was covering dollar long positions that had proved highly profitable in Fridays jumpy price environment. This was not the only reason for offsetting greenback positions and taking on new shorts though. Another issue that was winning prominence in the market was the Bank of International Settlements quarterly report released this weekend. Considered the banker for central and international banks, the BIS is the most accurate source for trends in the notoriously difficult to track currency market. One particular selection from the 109 page report that inspired an article from the Financial Times was the holdings of dollars by OPEC members. Accounting for a hefty portion of total energy production, the OPEC cartel trimmed its greenback holdings from 67 to 65 percent, the lowest level in nearly two years. Authorities in the Middle Eastern and Asian nations have announced their intentions to diversify out of their exposure to the US dollar for some time; and the BIS offers proof that they are living up to their word.
In addition to the BIS quarterly, releases of wholesale inventory and sales numbers were also leading traders to cash out of the greenback. Accounting for nearly a quarter of total inventory in the US economy, US stores grew 0.8 percent in October. However, since this report is leading indicator for the later released retail sales figure, the sales statistics drew more attention. Activity through purchases at wholesalers dropped 0.5 percent through the month, marking the first back-to-back decline since April of 2003. The distribution of sales statistics was markedly different than only a few months ago. Durable sales were off 0.4 percent through the period, led by a sizable 3.3 percent drop in machinery sales. On the other hand, purchases of autos finally gained ground on a 2.5 percent rebound, while the value of petroleum sales dipped 5.1 percent with the price of crude. One statistic that is particularly interesting given the debate over whether the US is heading for a hard or soft landing is the inventory/sales ratio which grew to its 1.2, its highest level since June of 2005. Now market participants will turn to tomorrows trade balance and FOMC rate decision for clues to how the dollar should be valued.
Benchmark equities indices were on the move higher Monday though buying interest was moderated by caution ahead of tomorrows Fed rate decision. Pacing the pack by 16:45 GMT, the tech-heavy NASDAQ Composite was 0.5 percent ahead at 2,449.50. Following with some distance, the S&P 500 advanced 0.28 percent to 1,413.81 as the Dow rose 0.2 percent to 12,332.32. Amongst the blue-chips, DuPont shares were on the move. In a statement, the firm lifted 2006 earnings forecasts while also announcing plans to cut 1,500 jobs worldwide sending share value up $0.69, or 1.9 percent to $47.59. In the automotive sector, shares of Ford Motor Co. retraced an early-session 0.8 percent advance to trade off 0.1 percent at $7.23. The initial rise was triggered by a statement revealing the firm would extend its buyout offers to most of its white collar staff.
This mornings wholesales data was enough to rouse debt traders interests, even before the Fed rate decision. Treasury notes were 6/32nds higher at 100-27 while yields slipped 3 basis points to 4.518 by 16:45 GMT. Longer maturity bonds were quoted 15/32nds off face at 98-01 at the same time while its own yield also dipped 3 basis points to 4.623.
