The dollar fought hard for its gradual gains against the majors through May; and yet market forces may erase the entire move in mere days if the recent correction sustains its heady clip. Scanning the fundamental inputs though, the currency may regain its balance with today’s indicators crossing the wires with strong numbers, officials fending off bearish economic forecasts and short-term yields climbing to new highs.

Though the kindling has been laid out for another bout of greenback strength, this morning’s technicals were not conducive to such an outlook. The EURUSD made its defining move when it finally broke above 1.35 and marked the end of a falling trend channel in the process. So far, 1.3555 looks to be holding up as a short-term resistance point. GBPUSD put in a modest 55 point rally to 1.9965 with its major move having already taken shape yesterday in the move through 1.99. Carry pairs reported the biggest anti-dollar move through the morning. USDCHF tumbled 80 points from intraday to bring spot to a new three-week low of 1.2160. Finally, the recently inactive USDJPY proved to be the most volatile mover for the session on an 80-point plunge that has called an end to a month-long rising trendline.

The economic calendar tried to cast its influence over the market Tuesday morning with a few minor sales reports and the monthly ISM non-manufacturing survey. Without a doubt, the monthly service sector activity gauge was the most significant indicator for the day. With last week’s manufacturing indicator as a guide, economists expected a small contraction from today’s report. This left traders scrambling when the number crossed the wires with a 13-month high, 59.7 read. Confirming the headline number was not just some temporary fluke, many of the major components within the survey reported considerable strength. For demand, new orders hit a new 8-month high, while those from outside the US surged to levels not seen in at least five years as the currency hovers near multi-year lows. Another highlight from the breakdown was the jump in the employment sub-gauge to a new yearly high, though its impact on short-term price action was muted since NFPs hit the tapes last Friday. The most interesting component of today’s report was the inventory number. Over the past two quarters, US firms have dialed down production in an effort to burn off excess stock. Factory activity has just recently turned positive as companies start to rebuild stores. This is interesting when juxtaposed against the highest level in the service’s inventory sub-guage in at least five years.

While this one indicator gave fundamentalists a lot to work with, there was already an underlying current sweeping the dollar lower. Early this morning, Fed Chairman Ben Bernanke spoke on the US economy and housing market via satellite to a conference held in Cape Town, South Africa. Most of the notable remarks the Chairman used in previous public addresses like his observation that core inflation ‘remains somewhat elevated’ and that the economy will grow at a “moderate’ pace. A more unusual comment was made on the situation in the housing market. Bernanke reassured the market that the worst contraction the housing market since 1991 was not spreading to other sectors; but he also warned that weakness could persist longer than most anticipate if policy officials over reach in their efforts to tighten lending regulations in the wake of the jump in sub-prime defaults. Adding to the cautious optimism later in the day, Treasury Secretary Henry Paulson weighed in on protectionist trends in US-Chinese trade relations. Paulson warned that Americans were ‘impatient to see real change;’ and that the growing trend towards restrictions was not just a US trait but was apparent is domestic Chinese politics. The market is still waiting for the Treasury Secretary’s efforts to diffuse anger on both sides to bear fruit.

Stocks were plunged back into the red Tuesday morning as investors go about the delicate task of balancing economic data’s effect on growth and revenues versus rate expectations. By 15:45 GMT, the Dow and S&P 500 indices were sharing the title for the biggest session decline on 0.58 percent contractions to 13,596.67 and 1,530.31 respectively. The Nasdaq Composite wasn’t too far behind with its own 0.49 percent loss to 2,605.33. Looking through the headline movers, it was clear that there were no outsized M&A deals to jumpstart the markets. From corporate news, retailer Bed Bath & Beyond issued its first profit warning as a publicly traded company, leading shares on a 5 percent drop to $38.44. Moving on an earnings forecast of its own credit firm Equifax actually saw its shares rally 3.5 percent or $1.50 to $43.83.

Traders in other markets were tuning into activity in treasuries as they tried to garner a better feel for Fed policy from yields’ heightened sensitivity to interest rate speculation. At 15:45 GMT, the ten-year treasury note was 14/32nds off the open at 96-07 as its yield charged 6 basis points higher to a fresh 9-month high 4.985. The thirty-year bond fell 23/32nds to 95-03 while its own yield rose 5 basis points to 5.071.

John Kicklighter is a Currency Strategist at FXCM.