Overall: The overall market sentiment continues to be dollar negative and has been since the week of April 20th However, the market continues to trade in response to major economic news and U.S. equity markets. News that suggests the overall global economy still has a way to go before reaching a bottom tends to send U.S. equities lower and strengthens the dollar during the U.S. session and positive news on the global economy has the reverse effect. Today, disappointing retail sales pushed equities lower and the dollar strengthened across the board as traders, once again, became less risk tolerant and fled to safety. We have seen this before and in recent times the moves in the majors have been retraced. There were other factors that affected dollar based currency pairs including the BOE inflation report and, to a lesser extent, euro-zone industrial production but the strong, dollar positive, moves came after the retail sales release. There are no ‘red flag’ economic releases during tonight’s Asian session or tomorrow’s European session, which means equity markets will probably hold the key to dollar movements overnight. The same scenario sets up for tomorrow as U.S. PPI and unemployment claims will be released. A miss to the downside could see the dollar strengthen again during tomorrow’s U.S. session.

U.S. retail sales unexpectedly dropped in April as unemployment continues to take its toll and consumers are reluctant to spend. Retail sales dropped 0.4%, less than the previous months read but worse than economists had expected. The core number came in at -0.5% also less of a drop from the prior month but worse than expected. U.S. business inventories dropped 1% in March, the seventh straight monthly drop. U.S. equity markets dropped significantly with the DOW posting losses of approximately 185 points and the S&P losing more than 24 points and closing below the 900 level.

The Euro (Eur/Usd) The euro lost ground on Wednesday, giving back Tuesday’s gains, as the dollar strengthened in the broad market. The pair lost approximately 70 pips, closing below the 1.3600 level. Movement in the pair has been contained this week as the pair has been unable to close above 1.3650 or below 1.3570. Industrial production in the euro-zone fell in March by 2.0%, more than what economists’ expected. On an annual basis, industrial production is down 20.2%, the largest annual drop on record.
The Pound (Gbp/Usd) The pound was dealt a double blow on Wednesday, a negative BOE inflation report which weakened the U.K. currency and worse than expected U.S. retail sales which strengthened the dollar as traders headed for safer assets. The pair lost approximately 130 pips on the day after trading in a wide 245 pip range. Today’s movement erased almost all of yesterday’s gains and resulted in the pair closing below 1.5150. The Bank of England noted that there has been a strong deterioration in the outlook for the domestic economy but noted that some signs of improvement have been seen recently.
The Aussie (Aud/Usd) As would be expected, lower overall commodity prices and slumping U.S. equity markets led to the Australian dollar weakening on Wednesday. The aussie dropped 140 pips as worse than expected U.S. retail sales forced traders to become cautious and exit positions in the higher yielding Australian dollar. The pair is now negative for the week and closed the day testing the 0.7500 level as support. There were no Australian economic releases last night and none are scheduled for tonight. 

The Cad (Usd/Cad) The dollar strengthened against its Canadian counterpart on Wednesday as economic releases indicated that the global recession may not have found a bottom, pushing equity markets lower and forcing traders to move back to the relative safety of the dollar. The pair gained 150 pips on the day and closed Wednesday’s trade above the 1.1750 level and heading closer to the 200 day simple moving average

The Swissy (Usd/Chf) At the end of the day the swissy closed very close to where it began the day. The pair closed the day higher by less than 20 pips after trading in a range of approximately 120 pips. There were no economic releases from Switzerland today but tomorrow morning will see Swiss PPI numbers revealed. SNB board member Jordan will speak in the morning and lately comments from SNB members about intervening in the currency markets has moved the Swiss franc.

The Yen (Usd/Jpy) For the fourth day in a row the Japanese yen has strengthened against the dollar as U.S. equity markets continued their skid. The pair dropped another 110 pips on Wednesday, closing below the 95.50 level and testing the 100 day simple moving average as support. There are no economic releases from Japan scheduled during tonight’s Asian session so Asian equity markets, and whether they follow on from today’s U.S. session or reverse, will likely influence the pair overnight.