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Dollar Bullish Breakout Fully Disarmed after Market Absorbs Greek Fears, US GDP
Friday’s session was an unfavorable one for the US dollar even though scheduled event risk was largely supportive for the benchmark. It would be easy to simply attribute the currency’s third consecutive daily decline on progress founded in risk appetite; but sentiment trends have progressed little through the second half of the week. Since the mini market panic this past Wednesday, when Greece’s debt was lowered to junk status and a Portugal downgrade sparked fear that an isolated problem in the European Union was blooming into a global threat, concern has dissipated substantial. As discussed yesterday, this can be described as a desensitizing to a threat that seems ever-present; but it does not mean that the risks to global growth and financial health have vanished. If anything, the hazards continue to grow and the threat of another crippling crisis nears. Yet, while holding to one’s fundamental convictions may be admirable, fighting the current with a trading account is only guaranteed to lead to ruin. As for the greenback, the opportunity to turn a 12-month high into a solid bull trend has been lost. But that does not mean that new shocks, changing interest rate expectations or evolving growth forecasts can’t revive the currency’s bid for new highs.
From pure investor optimism to the less subjective qualification of economic health, dollar traders were prepared Friday for the advanced reading of first quarter GDP. For proxies, the Chinese growth reading for the same period had already set the pace for the emerging markets while the United Kingdom’s report lowered the bar for the G-7. However, the US holds a unique place in the ranks as the world’s largest economy with the most affluent consumer base and one of the largest financial markets. Given the tout the nation pulls, progress reports like this are market-wide events. As for the outcome of the data, the 3.2 percent annualized pace of expansion was weaker than expected (3.4 percent) and far slower than the six-year high 5.6 percent reading from the fourth quarter. However, the quality of the data showed improvement. Though the economy would grow at a faster clip in the final three months of 2009, momentum was founded in gross private investment – partially a result of government stimulus and extraordinarily low borrowing rates. Such a strong upsurge (which was largely the consequence of the previous year’s dramatic slump) would not be sustainable. Indeed, business spending would contribute 1.67 percentage points to growth where it accounted for 4.39 percentage points over the previous period. With government spending and net exports further detracting from activity, it was the consumer that would pick up the slack. The 3.6 percent expansion in personal consumption was the strongest reading since the first quarter of 2007 and steered the economy with a 2.55 percentage point contribution to the economy. More important than the historical statistics though, the shift in activity away from temporary factors like generous liquidity, government spending and inventory building to enduring aspects like consumer spending develops a sense of stability in the economy’s recuperation.
