US Dollar Rallies on German DAX Losses, Falls on Dow Jones’ New Highs

• Euro Unchanged Despite Strong Greek Debt Auction, Cautions Raised
• Australian and New Zealand Dollars Give Back Gains

US Dollar Rallies on German DAX Losses, Falls on Dow Jones’ New Highs
The US Dollar moved steadily higher against the Euro and other major currencies through late European/early North American trade, but a later rally in the Dow Jones Industrial Average pressed the safe-haven USD lower against all G10 currencies. All major European equity indices finished the session lower, and generally lackluster financial risk sentiment led to a lower open in the US Dow and S&P 500. Yet the DJIA subsequently reversed and broke to fresh 18-month highs—pushing the highly-correlated US Dollar lower in the process. A modestly disappointing US Trade Balance report had comparatively little effect on the Greenback, while largely uneventful Federal Reserve and Treasury speeches had little effect on financial markets.

Traders now look to tomorrow’s duo of US Consumer Price Index results and Advance Retail Sales numbers due at 08:30 Eastern Time. The former is expected to show that Core Consumer Price Index inflation dropped to 1.2 percent in the 12 months ending in March—supporting the case for a relatively low-inflation economic recovery. Yet analysts predict that headline inflation will hit a substantial 2.4 percent through the same period, and any substantive surprises to the topside could give the US Federal Reserve cause for concern.

The simultaneous Advance Retail Sales report will shed light on the relative strength of US consumer spending, and economists predict sales grew by the most in four months through March. Personal consumption comprises a whopping 70 percent of the US economy, and it will be critical to watch for any and all surprises around said report. Lofty expectations certainly leave ample room for disappointment for recently high-flying Consumer Goods-oriented stocks. Traders should watch for considerable volatility surrounding the simultaneous CPI and Advance Retail Sales releases.

Euro Unchanged Despite Strong Greek Debt Auction, Cautions Raised
The Euro finished modestly higher against the US Dollar yet closed almost unchanged against other major counterparts despite fairly bullish news of a successful Greek government bond auction. The Greek Treasury auctioned off 6 and 12-month Bills to investors at relatively modest rates of 4.55 and 4.85 percent, respectively. Said rates are nearly 450 basis points above German benchmark rates, but the fact that the issue was heavily oversubscribed signals that global investors were more than willing to finance Greece’s relatively short-term budget shortfalls. Longer-term Greek bond yields, on the other hand, finished considerably higher as markets continue to price a great deal of uncertainty into required rates of return.

The Euro Zone’s commitment to provide up to 30 billion euros in direct financial aid at 5 percent for three years should theoretically put a cap on Greek borrowing costs. Yet Bloomberg’s composite rates show that Greek bonds with 3-year maturities are yielding 6.54 percent—a full 154 basis points above the aforementioned rate. Such a result seems surprising until one considers that the Greek government will require approximately 40 billion euros in fresh capital due to budget deficits and bond redemptions through the end of the calendar year. Investors are clearly pricing in considerable default risk, and it suffices to say that the Greek fiscal crisis is far from over. Markets may very well call the Euro Zone’s bluff and force Greece to tap into the emergency funds—putting considerable downward pressure on the Euro itself.

Traders should clearly continue to monitor developments out of Greece, and a relatively empty economic calendar suggests that the Euro will otherwise continue to track moves in global economic risk sentiment.

New Zealand Dollar Falls Sharply as Retail Sales Slump
The New Zealand Dollar fell sharply against the US Dollar and other counterparts immediately following a disappointing NZ Retail Sales report. Retail spending fell 0.6 percent through the month of February—a print 0.8 percentage points worse than consensus forecasts at a 0.2 percent gain. In fact, the Excluding-Autos release was even worse at a 0.9 percent tumble despite analyst expectations of a 0.4 percent gain. It serves to note that monthly New Zealand retail sales tend to be fairly volatile and don’t necessarily paint an accurate view for overall consumer spending. Yet markets will react to whatever data is on hand, and the bearish retail figure may be enough to slow NZD gains through short-term trading. Short-term technical support can be found near the psychologically significant 0.7000 mark.

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