Capitulation was the name of the game in NY trading today as the risk trade continued to unwind in orderly fashion. The overnight news that China would be capping its lending carried through for the better part of the session and not even better US economic data could shift the tone. US durable goods disappointed on the headline with a -2.5% print for June but the details were more upbeat with the proxy for private capital expenditures rising 1.4% on the month. Indeed the decline in the headline was driven by a massive drop in the transports sector which tends to be very volatile. If past is prescient, this sector will likely contribute positively to the report in the next round. Oil inventories surprised to the upside with a 5.2 million barrel build for the week. The market was looking for a modest draw and so the surprise was palpable. The commodity took a sharp spill down to the $62 handle after trading above $67 overnight. Gold also took it on the chin and slipped more than $7 into the 929/930 zone. In sum, it was a perfect storm for US dollar strength.

In other news, the Fed Beige book provided a relatively status-quo assessment of the US economy. They noted continued weakness in the retail space, a very poor employment landscape and still tightening lending standards. The bright spots were the tech, aerospace/defense, and health care sectors – where sales and hiring remain on the up and up. The market shrugged the report off overall as most of the headlines were baked in the cake. The US Treasury also auctioned 5-year notes today and the results were a bit sloppy to say the least. The bid/cover was just 1.92 while 37% of the offering went to indirect bidders (foreign central banks). Both measures were well below recent trends. The auction should have been a US dollar negative at the margin as it suggests some waning in appetite for US government paper. Risk mattered more however.

EUR/USD slipped further as major banks were ostensibly consistent sellers of euro pretty well the entire session. The pair sank to a low of 1.4008 as of this writing after posting a 1.4195 overnight high. The 55-day sma lurks at 1.3997 and is the next big support level to watch here. The drop below could be rather violent as we expect a decent amount of stops just below the 1.40 level. The yen crosses traded in choppy fashion pretty much in tandem with stocks. EUR/JPY sat near 133.40 after printing a session low at the 133.00 mark and a high by 134.00. Commodity currencies were heavy and USD/CAD eked out a decent rally. The pair is now trading by 1.0900 support and should find some resistance into the 1.0940 area, where both an hourly trendline and the 200-hour sma currently converge. AUD/USD came off cloud nine and after posting an overnight high at 0.8279, was sitting near 0.8170. The risk trade remains in focus as we head into the overnight sessions and, while the unwind continues, we expect the buck to outperform.

Upcoming Economic Data Releases (Asia Session) prior expected

  • 7/29/2009  23:50 GMT JN  Industrial Production (MoM)  JUN P  5.70%  2.50%
  • 7/29/2009  23:50 GMT JN  Industrial Production YOY%  JUN P  -29.50%  -23.60%
  • 7/30/2009  1:00 GMT AU  HIA New Home Sales (MoM)  JUN  -5.70%  - -
  • 7/30/2009  1:30 GMT AU  Building Approvals (MoM)  JUN  -12.50%  8.00%
  • 7/30/2009  1:30 GMT AU  Building Approvals (YoY)  JUN  -22.40%  -18.20%
  • 7/30/2009  1:30 GMT JN  BOJ Board Member Noda to Speak in Matsumoto City