USD Responds Well to Better than Expected Data

For most of last year, it seemed that better US economic data was often greeted with a weaker dollar on ideas that it encouraged the risk-on trades, which involved selling the greenback. Last week's US jobs data were generally favorable, especially given the back month revisions and the longer work week and the dollar advanced. Today the stronger than expected service ISM and pending home sales cut short another attempt to push the greenback lower.

Taken together the ISM report and employment data do point to some broadening and deepening of the economic recovery. The housing market softened at the end of last year into early this year. The increase in Feb pending home sales (8.2%) offset in full the revised 7.8% decline in Jan (initially-7.6%) and points to better existing home sales in the coming months.

The next piece of real sector data will be the chain store sales on Thursday and anecdotal reports suggest a healthy increase. This coupled with last week's auto sales figures point to rise in March retail sales, which will be reported on April 14. A monthly headline rise of 1% or a little more seems reasonable.

On April 1, the euro traded between $1.3460 and $1.3591. It has been confined to that range since. The break of that range is likely to signal the direction of the next 1-2 cent move. Sterling briefly rose through resistance near $1.5300 and was pushed back by the stronger than expected US data. Still the market does not appear finished and the $1.5380 area may offer a near-term target.

While dollar-yen is pulling back, the euro-yen cross is more interesting. The euro has traded on both sides of Friday's trading range. A close of the North American session below JPY127.16 could potentially signal a further setback in the euro-yen and may help the yen recover some recent lost ground against the dollar.

Another cross that is very much in play today is euro-sterling. Sterling continues to recover as the polinitial cloud of a hung parliament appears to be gradually lifting. The GBP0.8800-10 area should offer support, but a break of that area could signal a move toward GBP0.8700 and pose an additional weight on the euro vs dollar and yen.