It seems the majors are back to their old ways. The second New York morning session stocked with market moving indicators has passed without a revival of last weeks spike in volatility. If fundamentals fail to rouse the anti-dollar momentum, the market could react to suggestions that the worlds largest currency is oversold.
Looking to price action, ranges were still intact, but momentum on the dollar favorable legs seemed to strengthen. For the EURUSD pair, a brief jaunt above the 1.32 figure marked a 20-month high before sinking over 85 points in what resembles profit taking. The yen move was less dramatic as an Asian session low around 115.60 led to a rally to 116.50 before another test of the resistance fended off a further run. The USDCHF swung off of a double bottom from the after-hours sessions for a 100-point rally to 1.2110. Finally, the British pound has formed a solid range against the greenback between 1.9545 and 1.9470, an unusually narrow range relative to other pairs suggesting pressure is building.
The window for traders to rally the troops around another wave of strong dollar selling is closing, at least fundamentally. Todays economic releases were stoking the economic fires with a big revision of third quarter GDP and a disappointing new home sales report that has erased much of the optimism that the housing market may nearly be out of the woods. The first big report this morning was the first revision of economic growth covering the three months through September. Running into the release, there were few expectations on the table as many would rather ignore the modest bump in the lagging indicator. In its initial report, the 1.6 percent annualized pace of expansion was the slowest in three-and-a-half years. However, in contrast to the expected revision to 1.8 percent, the market was surprised to learn that the BEAs calculations saw a 2.2 percent pace. Now a three-and-a-half year low is merely a three quarter low. On the other hand, some of the nuances of the revision were dubious in their support to a bullish turn for growth. The bulk of the positive shift came from a firming in inventories, which is typically an unfavorable condition for growth in the following periods when businesses halt production in order to work off the stores. Whats worse for the dollar, both income and inflation tempos were unsupportive. This is a heavy cloud hanging over hawks heads, especially given the big reduction in wage growth in the second quarters GDP record from 7.7 percent to 0.7 percent.
With cautious optimism, traders accepted the growth numbers and shifted their attention to the new homes sales report. In terms of the entire housing market, new homes account for an estimated 15 percent of total sales, a relatively small portion in comparison to yesterdays existing homes report. Then again, the new report is a leading indicator to yesterdays report, which helped to leverage the market moving potential of todays release. According to the Commerce Department, sales of recently completed homes dropped more than expected to 1.004 million units, a 3.2 percent contraction following Septembers downwardly revised 3.7 percent growth. This is an ominous sign for Novembers existing homes report, which predictable followed the rebound in the September reading of new sales in its report yesterday. Furthermore, the national inventory of new homes on the market for sale grew to a record 166,000, contrasting the improvements in the broader measure that includes starts and permits. The report itself was not without redeeming qualities. The median price for new units grew 13.9 percent to $248,500 over October, contrasting the biggest drop in existing home prices ever for the same month. Now, as the newswires cool, the market will position itself for the Beige Book due out at 19:00 GMT to reveal the same numbers the Fed will look at in its next rate meeting. Tomorrow, the now even bulls and bears will have another chance to tip the scales with personal spending, the Chicago manufacturing report and third quarter housing price index on deck.
Equities markets were energized by this mornings positive GDP revision. The NASDAQ Composite led the advance in a tight pack with a 0.85 percent run to 2,433.23 by 16:35. The S&P 500 was just behind with an 0.84 percent rally to 1,398.32 while the Dow was making up ground with a 0.74 percent gain to 12,226.65. Amid the upgrades and earnings reports this morning, the real strength was seen in divestments and cost cutting. Shares of drug-maker Pfizer Inc. grew $0.13 or 0.5 percent to $27.18 after announcing it would cut its US sales force by 20 percent to save costs. Another leading company, ConocoPhilips had also seen its stock jump after announcing plans to sell its Canadian properties to Pengrowth Energy Trust for $1.04 billion. Shares of ConocoPhilips were 2.1 percent higher on a $1.35 bid to $66.26.
Treasury paper was little moved by mid-day Wednesday as a number of economic indicators offered mixed sentiment while a Beige Book loomed. The T-note was quoted only 1/32nds off at 100-30 with yields up a basis point to 4.507 by 16:35 GMT. Bonds were only 2/32nds lower at 98-15 as its own yield was unchanged at 4.595.
