The firmness witnessed in the greenback during yesterday’s holiday-thinned trading session has carried over as liquidity and volume return to financial markets, causing the DXY to jump higher throughout Asian and European trade. The chief drivers that have spurred the dollar recovery have not changed materially, but the narrative is taking a greater hold of market participants as they weigh testimony prior to the holiday weekend from FOMC members Yellen and Fischer, who both struck a cautious tone, albeit with a slight bias for starting the gradual process of raising rates later this year.
In addition, the success of the anti-austerity party in Spain over the weekend has investors in Europe on shaky ground, as the negotiations between Greece and their official creditors now become all that more important, as they will likely act as reference material if a similar situation arises in Spain. In addition, there has been no further progress in negotiations between Greece and its creditors, leaving next week’s payment to the IMF in jeopardy. Though this is not the first time Syriza has raised alarm bells that they will not be able to make a debt repayment if a new deal is not reached, but the fact that the last payment to the IMF was made possible by tapping an emergency fund at the IMF itself, is leading market participants to believe the potential conclusion to the Greek saga is near. As a result, the euro is emitting a solid offer tone midway through the European session, though the release of Durable Goods before the North American open will likely drive price action throughout the rest of the morning.
Today there is a slew of US data for traders to parse through as they return to their desks after the long weekend, with Durable Goods Orders hitting the wires first, followed by the Conference Board’s survey of Consumer Confidence and New Home Sales at10:00EST. New Homes Sales for April are expected to re-take the 500k mark on an annualized basis after the drop below March, though it should be cautioned that Existing Home Sales for the same month did come in on the soft side of expectations last week, so it will be interesting to see if that is representative of the overall housing market or if New Homes Sales are still able to elicit strong demand.
Durable Goods Orders for the month of April just crossed the tape, and though the headline number came in as expected with a drop of 0.5% compared to the previous month, much of this was owing to the softness in aircraft orders. The core measure of durable goods orders came in better than expected with an increase of 0.5% vs. the median analyst forecast of 0.3%, but it was the proxy for business investment that really blew expectations out of the water, posting a 1.0% increase from the last month, where the March number was also revised higher from +0.6% to +1.5%. After all is said and done, the first durable goods report for the second quarter is fairly optimistic, with this being translated into currency markets where the greenback is building on its earlier gains. The loonie is losing ground against its American counterpart as a result, with oil prices and equity futures exhibiting similar red hue given the increased likelihood of a Fed rate hike in September.
Further reading:
Core durable goods orders beat expectations with +0.5% – USD higher
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