The US Dollar regained ground for the first day since Friday, as relatively thin market conditions allowed profit-taking to produce a large move. Despite reaching intraday highs of 1.3248, the EURUSD saw continued offers bring it down to lows of 1.3160 through afternoon trade. In similar form, the GBPUSD moved to three-week highs at 1.9751 before selling interest found a floor at 1.9619.
With no new <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />US data on the agenda, it seems that the majority of price action was a result of pure capital flows. Dealers cite thinning liquidity ahead of the Christmas holiday as the primary driver of larger-than-usual moves, especially as traders book dollar-short profits ahead of the end of the year. This was especially evident ahead of the London fix, with the Pound losing nearly 70 points ahead of the de facto European market close.
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In terms of changed fundamentals, the only relatively significant economic data through the US session was Canadian Wholesale Sales and US DOE Crude Oil Inventories. Canadian wholesale numbers disappointed for the second straight month, with the previous months change being revised lower and the current result falling in below expectations. The poor figures were not enough to slow the broader Loonie rally, however, as strong crude oil prices underpinned demand. This continued through 15:30 GMT, when the US Department of Energy reported on energy stockpiles for the worlds largest economy. With a sharper than expected drop in Crude Oil inventories, commodity prices continued higher through the moments that followed?further lending to a USDCAD decline. As initially volatile reactions slowed, however, we saw both commodity and currency markets retrace some of the days earlier moves.
Global equities were slightly stronger through the afternoon, but relatively thin trade gave little legitimacy to the minute advances. Indeed, US indices shed earlier gains when higher oil prices cut into broader market bullishness. At time of writing, the S&P 500 was unchanged at 1425.88, while the Dow Jones Industrial Average was a mere 0.1 percent higher to 12,484.94. A downgrade in outlook for FedEx earnings dragged Transport stocks lower, while small-scale takeovers led other sectors higher.
US Fixed income issues were also little moved through the session, with the 10-year note almost exactly unchanged at 100 and 7/32s. Yields added slightly less than a full basis point at 4.595 percent.
