The US economic calendar has passed through another morning session without the complications of a top market-moving economic indicator to disrupt price action. However, as the short-term crowd was lulled into complacency, fundamental traders were tuning into Fed speak and the implications surrounding the collapse of a big bank’s internal hedge fund on market-wide risk appetite.

Without the immediate gratification of a key economic report though, dollar traders were comfortable with keeping their favored currency relatively unchanged. Since finding its way back above 1.34, EURUSD has formed a tight, 20-point congestion channel below 1.3435. The pound-denominated major was a little more active since the minutes of the last BoE decision revealed the vote was closer than many had suspected. GBPUSD was 70 points above overnight lows and was having trouble with moving above 1.9940. Making its biggest swing low in two weeks, USDJPY made a move down to 123.10 through the Asian session before quickly working its way back towards resistance at 123.65. Finally, USDCHF was working on a fourth down day, as it dropped another 50 points to 1.2355.

Continuing with the housing theme that has dominated the US markets since the beginning of the week, the only indicator to cross the wires this morning was the MBA’s weekly mortgage applications figures. According to the group’s figures, filings for home loans fell 3.4 percent through the week of June 15th. This is a poignant addition to the collection of weak numbers reported so far this week. With the rate on the average 30-year fixed rate mortgage at an 11-month high 6.60 percent and the MBA reporting a record number of home owners in the foreclosure process in the first quarter, this leading number gives further reason to doubt a housing recovery. While the applications number filled a few empty calendars, the real news for the housing market – with broader implications to general risk appetite – was the ongoing attempt to bail out a few of Bear Stearns internal hedge funds. The High-Grade Structured Credit Strategies Enhanced Leverage Fund and a smaller fund are in danger of forced liquidation after suffering considerable drawdowns. While there have been a number of hedge fund collapses recently, few have been so closely tied to the housing market and sub-prime loans. The $600 million fund had most of its capital tied up mortgages – namely sub-prime, though there was also allocations in prime and Alt-A loans. Many mortgage specific firms like New Century have already succumbed to the jump in sub-prime defaults; but if the Bear Stearns funds go, it may be a sign that the contagion has not been isolated as the Fed has suggested on a number of occasions. Should this hedge fund fall, it would be one more step to more pressing problems in the huge derivatives market and commercial and investment banks. If it reached such levels, the global markets low volatility, high leverage conditions could quickly evaporate.

Moving away from the housing market, but keeping to the warning on risk in current market conditions; the Treasury Secretary and a few key Fed members offered their opinions on the state of things. In a speech to the House Finance Committee this morning, Treasury Secretary Henry Paulson zeroed in on the importance of economic reform in China. Trying to relay the true issues with the Asian giant’s economy (besides the favored currency band), Paulson said Chinese officials should do more to promote domestic consumption and wean itself off of its reliance on foreign investment and exports to avoid a possible financial crisis. Fed Presidents Janet Yellen and Timothy Geithner delivered a similar message. Yellen said the calm seas in the markets shouldn’t encourage complacency and a roll back in reforms as similar episodes in the past have led to disaster. Geithner recalled the Asian financial meltdown of the 90’s to color his call for vigilance, suggesting officials’ attempts to shield their economies from risk through manipulating exchange rates could exacerbate the fallout.

The financial media was buzzing this morning as reporters jumped on corporate earnings reports, buy backs, and fresh M&A news. Despite the overabundance of news, the biggest move from the major indices by 15:40 GMT was the S&P 500’s 0.16 percent decline to 1,531.30. At the same time, the Nasdaq Composite was only marginally lower at 2,626.10 while the Dow was working on a fractional gain to 13,640.30. From the active list the morning, a number of the top movers were reporting earnings numbers. FedEx Corp. surprised investors with a 7 percent jump in profit for the previous quarter which helped drive shares 2.4 percent higher to $110.66. In other news, Home Deport caused major ripples when its shares rallied 6.7 percent to $40.84 after announcing a $22.5 billion stock buy back plan.

Treasuries fell for the first time in four days on Wednesday as housing pessimism started to let up and companies sought protection from higher interest though shorting government paper. The ten-year note was trading down 6/32nds at 95-10 as its yield rose 3 basis points to 5.109 by 15:40 GMT. The longer-dated T-bond was 13/32nds lower at 92-28 with a yield also 3 basis points higher at 5.225.

John Kicklighter is a Currency Strategist at FXCM.