Dollar Mixed Ahead Of Wednesday FOMC Meeting
Overall: The dollar closed Tuesday's trade mixed as the market continues to move in risk aversion mode, which benefits the greenback, but a stronger than expected read in consumer confidence brought dollar sellers back to the market on reduced demand for safe havens. The swine flu scare that had markets jittery on Monday continues to play a role in financial market activity but on a reduced level. The U.S. Conference Board consumer confidence numbers came in higher than analysts' expected at 39.2. this is a good sign for the overall economic picture as this may impact retail sales, CPI, durable goods and GDP in the future. The euro responded by moving higher, erasing 50% of Monday's losses. On the day the dollar weakened against the euro, Swiss franc and Japanese yen, closed flat against the Canadian dollar and strengthened against the pound and Australian dollar. A busy U.S. economic calendar on Wednesday could produce some volatility as advance GDP numbers will be released and the FOMC statement at 14:15 EDT.
The Euro (Eur/Usd) The euro moved higher on Tuesday, gaining 100 pips and erasing earlier losses after the Conference Board's consumer confidence numbers beat expectations leading to speculation that the U.S. economy may be finding a bottom in the current contraction phase and demand for safety decreased. The pair closed the day just below the 1.3150 level and moved back above the 50 day simple moving average. German preliminary CPI numbers came in slightly lower than expected at 0.0% but had little effect on the pair. Euro-zone money supply and consumer confidence data will be released tomorrow morning.
The Pound (Gbp/Usd) Cable traded in exactly the same fashion as it did on Monday, moving much lower overnight, but rebounding and closing the day lower by less than 20 pips. The pair has tried to push lower for 2 consecutive days but in both cases the 100 day simple moving average has provided strong support and prevented the pair from breaking below the 1.4500 level. On the day, the pair traded in a range of 170 pips. CBI realized sales crushed analyst's expectations coming in a 3 after economists had forecast a -40 reading. There are no U.K. economic releases scheduled for Wednesday.
The Aussie (Aud/Usd) The aussie moved lower again on Tuesday as the currency market continued to trade in risk averse mode increased by speculation that the stress tests will highlight weakness in U.S. banks and the continuing swine flu outbreak leading traders to sell higher yielding assets. The pair did recover some pips lost overnight and closed the day lower by approximately 30 pips. There were no economic releases from Australia last night and none scheduled for tonight's Asian session.
The Cad (Usd/Cad) The better than expected Conference Board's consumer confidence numbers helped the Canadian dollar as the positive news, which may be an indication the economy may be on the mend, tempered the decline in the currency on fears that travel may be quelled between North American countries because of the swine flu outbreak. The pair pushed higher ahead of the economic release but retreated after. The pair closed the day lower by less than 20 pips. There were no economic releases from Canada today and there are none scheduled for tomorrow.
The Swissy (Usd/Chf) The swissy moved much lower on Tuesday erasing a lot of the gains captured on Monday. The pair lost 130 pips on the day and closed the day back below the 20, 50 and 100 day simple moving averages which had been broken to the upside yesterday. The Swiss consumption indicator rose in March for the first time in four months, gaining 0.10 points, increasing to 0.99. The Swiss KOF economic barometer will be released tomorrow morning and analysts' are expecting a decrease to -1.89.
The Yen (Usd/Jpy) The yen continues to move lower in ‘fits and starts' losing another 35 pips on Tuesday but closing well off the lows of the day. Again, the move lower was due to traders continuing to be risk averse, helped by speculation the U.S. governments' stress tests will expose weakness in U.S. banks. The pair closed the day just below the 96.50 level but had tested the 95.60 level intra-day. There are no economic releases from Japan tonight and all Japanese financial markets are closed for a Bank Holiday.
Wall Street Moves Snuffed Out At The Close: Financials Drop As Dollar Holds
U.S. equities moved the S&P market under support at 845, the 20 day SMA area, in early trade as the impact of the financial sector imploding again weighed on sentiment. As the NYMEX markets closed a rally off the lows took place which went on the reverse tack again at the close. The day ended virtually flat, but it was not without its moments in between. Consumer based shares moved on the strength of the Conference Board's consumer confidence numbers, whilst financial sector assets took a beating from fears that stress test results will be short of good news next week.
The S&P is higher by more than 25% since March 9th, and is therefore susceptible to tests of support, but unless big volume increases come into the market it will be a struggle to get things moving from here. The 845 area may be the swing point, but ahead of the FOMC rate decision on Wednesday a damage limitation exercise may take place.
It is unlikely that there will be too many good news stories coming from the Fed on Wednesday, but conversely the bad news does look to be baked into to valuations. With earnings season in full swing the momentum may just have to be contained. It does however look as though the short selling is at least being matched with attempts to rally.
On Tuesday the NYSE posted losses that averaged 0.4%. The DOW was on 8016 after a loss of 8 points (0.1%), while the S&P traded at 855, lower by 0.2%, and the technology-heavy NASDAQ traded at 1673, after moving down by 6 points (0.3%).
The European markets dropped lower in trade on Tuesday, unable to spark anything that looked remotely positive, and produced a sea of red numbers that initially empowered the Usd. The German Dax closed at 4607 (-1.5%), the London FTSE closed at 4096 (-1.7%), and the French Cac 40 stood at 3.051 (-1.7%).
Financial Sector:
In trade on Tuesday the XLF, the financial sector ETF, dropped 3.1%, to trade at 10.43, and did it on dramatically lighter volume; 132,000,000 ETF's changed hands, below the daily average of 228,000,000. The banking sector moved lower after the previous session woes were added to by stress test results fears next week, and after earnings numbers were pushed to the fore again. Without a solid period of trade from the banking sector the main equity markets are going to struggle to hold the higher ground, and that by default will empower the Usd.
Federal Reserve Slides A Mass Of Notes Into The Market: Treasury Yields Touching Yearly Highs
Treasury notes were smashed lower on Tuesday as traders absorbed news that a 50 year note could possibly be introduced by the Federal Reserve, and on speculation that the 8 times a year Treasury auctions will be increased to 12, in an effort to increase the exposure of U.S. government debt. Fragile signals that the economy may be bottoming were cause enough to send yields higher as the potential for a move from bonds to stocks over the coming months was digested.
Traders weighed the supply and demand issues after another swath of $35b of 5 year notes hit the floors today. There is more coming to market this week in new notes, and the Treasury is now relentlessly getting these auctions completed before the market runs out of interest in holding/buying/swapping notes. There are so many notes out there, and so many more to come, that the values are now starting to drop heavily, in-line with yields increasing to seven week highs.
The Federal Reserve sold a record number of new issue notes last week, and created another mass of dollar backed Treasuries for the market to absorb at auction this week. That sent the 10 year yield up to touch 3.02%, within just 3 basis points of the yearly high. The Fed continued its short-dollar mandate by buying record numbers of U.S. debt over the last two weeks. A 50 year bond would certainly reduce the stress on this generation's ability to fund this debt via growth, taxation, and investment.
The Fed plans to buy as much as $300 billion of Treasuries over the next six months in an effort to lower consumer borrowing costs. The benchmark 10-year note has yielded between 2.46 percent and 3.05 percent since March 19th, the day after the Fed's purchase program was announced, as the buybacks offset concern that government debt sales are setting records.
Crude oil for May delivery held major support at $48.50, but still closed lower by 1.68% on the day, with a $0.82 loss. Futures trade held a very tight range on Tuesday, locked in by the 20 day SMA at $50.50.
Gold for April delivery closed lower by $13.90 at $895 per ounce, in a test of major support areas at $888, the 20 day SMA area. Gold prices were the lowest in three weeks after the move away from the asset class in reaction to fears that the global recovery may be impeded by earnings and possibly sold in the face of a flu epidemic that has gripped media and market attention.
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