The risk unwind continued in NY trading as economic data out the US again suggested the recovery will be anemic at best. US equities slipped another two percent in the fourth consecutive decline and have now unwound nearly -5% of gains since last Thursday's close.
The US durable goods report was mixed as core orders rose 2.0% in September but shipments slipped -0.2%. The shipments number suggests some downside risk to the market's 3.2% expectation for 3Q US GDP tomorrow. Orders, meanwhile, provided little comfort as these can always be canceled.
The new home sales report followed and showed a -3.6% collapse in September after a paltry 1.0% rise the prior month. This threw some cold water on the notion that housing has bottomed here. With the Fed set to continue to subsidize the mortgage market â€ via MBS purchases â€ until 1Q 2010, however, the ultimate pain is still a ways away.
The flight to safety saw both the USD and JPY come back better bid. EUR/USD sank from a 1.4815 session high to a 1.4695/90 low ahead of the close. Stops likely lurk into the 1.4680/50 area now and we would look for overnight support into that zone.
The yen crosses were sharply lower as the carry trade came off the boil. AUD/JPY slipped from 82.80 to 81.30, CAD/JPY dipped from 85.00 to 83.90/85 and EUR/JPY plunged to 133.30/25 from an open near the 134.75 mark.
The commodity currencies had a rough session. The Canadian dollar continued to weaken as jawboning hit an all-time high with the Bank of Canada's Carney stating that they may use quantitative easing to slow CAD's advance. USD/CAD is now sitting near 1.0800 after a session low near the 1.0690/85 zone. We remain constructive with regards to the Canadian economy and think it will be on much better footing than the US in the foreseeable future.
Kiwi was also crushed and the RBNZ press statement late in the session exacerbated the losses. The pair sank like a stone from a 0.7340 session open and trades by 0.7230/35 as we write. The break below 0.7250 is significant and could elicit further downside in the short-term.