By DailyFX – Though treasuries didnt join in, the dollar and US equities had one of their most active days in recent history. As was… … explained in detail in the Dollar Daily
report (http://www.dailyfx.com/story/currency/eur_news/Dollar_Finds_A_Kind_Word_1178821235671.html),

There was a smattering of US economic data interspersed with a few key
words from a couple notable figures from Capital Hill. Starting off with
the mornings data mixture, we get a clear sense of what sent investors
in the stock market scrambling to unload their shares. The March trade
account printed a $63.9 billion the widest shortfall in six months. Some
of this sentiment was offset initial jobless claims to a four-month low;
but the real rally point for bulls were bullish comments from Treasury
Secretary Henry Paulson and President George W Bush. Paulson didnt say
anything novel with his affirmation that “a strong dollar is in the
nations [best] interest. More unusual was President Bushs promise
that his administration would lower trade barriers in order to attract
foreign investment into the US certainly a welcome policy point. Now
that volatility has been raised, traders are left to wonder whether it
will last. Considering tomorrows economic calendar will bring one of
the top market moving indicators, it may if for only one more day. The
Commerce Department is expected to report a 0.4 percent rise in retail
sales for the month of April. While this consensus is already reduced
from the previous periods pace, it may still be too generous. Recent
data has certainly led market participants to revise their unofficial
estimates well below economist predictions. The adjustments began on
Tuesday with the Redbook report. Considered the Feds retail sales
report, the indicator reported a considerable 4.1 percent drop. Today,
the skepticism only deepened. More than a few blue chip firms announced
monthly sales numbers that missed expectations. Whats more, the ICSC
Chain Store Sales report printed its biggest drop on records going back
to 23-years. Considering the dour outlook all of this has produced
though, a good number could trigger rallies.

Bonds – Treasury 10-Year Note Futures

Though the dollar has broken cleanly from its range near two-year lows,
and the benchmark equity indices have chalked up declines of well over 1
percent, treasuries have passed the day relatively unchanged. Through
todays data and official chatter the debt market kept a skeptical eye
as few of these events have actually altered the outlook on monetary
policy. What may finally get Treasuries in gear is Fridays retail sales
report. Since there is a very tangible divergence between the markets
outlook and the official consensus, a surprise may surely be in store.
Should recent, periphery sales data be correct and tomorrows number
actually drop, T-note futures may make a test of range highs and the
falling trend at 108-15. A shock on the other side could put 107-24
under pressure.

FX – EUR/USD

The US dollar has staged a massive rally against most of the majors,
but the markets will likely keep their eyes trained on the ever-popular
EUR/USD. The pair has dropped below resistance at 1.3525, despite the
fact the ECB signaled intent to hike rates in June. However, some
perceived hesitance to raise the benchmark beyond 4.00 percent helped
contribute to some Euro weakness. EURUSD declines look primed to
continue, but the release of US retail sales on Friday could derail the
pairs direction. Spending in the retail sector is predicted to slow to
0.4 percent during the month of April, though the figure could perhaps
be even worse, as sales in the Redbook report proved weak while Wal-Mart
reported the sharpest decline in monthly sales ever. Nevertheless,
technical factors are clearly in favor of dollar gains, so sentiment
will have to turn extremely bearish once again to take the currency even
lower.

Equities – S&P 500 Index

The S&P 500 Index showed its steepest drop since March 13th today, as
the benchmark closed down 1.4 percent to 1,491.47. Financial shares
accounted for more than a fifth of the loss in the S&P 500, dropping 1.4
percent as a group on speculation that interest rates will limit demand
for home loans, as the FOMC signaled that they will likely leave their
benchmark steady throughout most of this year. Citigroup, the largest
U.S. bank by market value, fell 92 cents to $53.20 while JPMorgan, the
third biggest, fell $1.20 to $52. Homebuilders also showed hefty
declines, as the sector fell 2.7 percent as a group. Lennar Corp., the
nation's largest builder by revenue, declined $1.07 to $42.10 while
Centex Corp., the third largest, slid $1.57 to $45.53. Retailers did not
fare well either, as shares of upscale department store Nordstrom
dropped $1.57 to $54.19. Furthermore, Retail Metrics Inc. reported that
a record 80 percent of retailers missed analysts' estimates in April.

The release of Advance Retail Sales on Friday morning could deal
another blow to the S&P 500, as the figure is predicted to slow to 0.4
percent during the month of April from 0.7 percent during the month
prior. However, given the dismal reports from US retailers for the
month, Fridays figure could perhaps be even worse. With US equities
showing some fragility, it is worth noting that Gold dropped $16/oz
today. The last time this happened was February 27th, the day before
Shanghai stocks plummeted more than 9 percent and sent equities around
the world reeling.

DailyFX Research Team
Forex Capital Markets LLC
32 Old Slip, 10th Floor
New York, NY 10004
Tel (212) 897-7660
Fax (212) 897-7669
E-mail: research@dailyfx.com

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