Dollar Jittery Before Fed Announcement

Though the greenback was holding steady ahead of the Federal Open Market Committee?s, small sharp swings belied the depth of the market waiting to put trades on after the event cleared the wires. And, with most of the majors positioned at technically vulnerable levels, the risk of big breakout moves and consequentially a new dollar trend is even greater.

Topping the majors, EURUSD was drifting in a 40 point range above support read at 1.3525 that could be a last stop on a strong dollar advance. Alternatively, USDCHF stalled at resistance just below 1.22, though a pressure release in the US session gave the pair a little breathing room with a drop to 1.2140. Being forced into a pressure situation of its own, USDJPY is encased in a range and wedge formation. The pair is now targeting 119.65 and 120.10 as barriers to its next trend. While most of the majors experienced some dollar selling to relieve the pressure on breakout potential, the pound was clearly taking advantage of the pull back. From overnight lows around 1.9880, GBPUSD was able to rally all the way to 2.00
There were few indicators scheduled for release in the US session this morning - perfect conditions for a build up to the Federal Open Market Committee?s rate decision. The only indicator to permeate the dense rate speculation was the weekly MBA applications number for the week ending May 4th. According to the Associations numbers, filings climbed 3.6 percent for the week, helping along predictions of a recovery in the battered housing sector. This was the third consecutive, weekly rise, following a concerning string of 5 consecutive declines. When the numbers for the residential group were isolated, the news was even better since applications for purchases rose 2.6 percent to a four-month high. Despite leading nature of these weekly numbers, the benefit for the overall housing market may not be so impressive since inventories are still bloated and monthly sales data has yet to respond to modest price declines.
Brushing this lower rung report aside - like the market has done - there is a feeling of strained tension ahead of the FOMC decision. Keeping the outlook light (a good in depth report was written by Kathy Lien and can be found at Will the Federal Reserve Meeting Help the Dollar? How Has Data Changed?), few are expecting many changes. Certainly markets are pricing in little chance of a change to rates, leaving the statement the key ingredient for risk. Subtle changes have been marked recently in the brief, specifically tweaks to rhetoric surrounding inflation and housing trends. Analysts will jump on any word that is cut, added or changed; but big moves will likely need real impetus like a suggestion that soft growth is demanding more attention than possible inflation risks. Ultimately, when the FX market pulls through the FOMC meeting, speculators will just move on to the next smattering of releases. Tomorrow?s trade balance and import price index will revive volatility post-Fed and just in time for Friday?s retail sales number. Outside of the boundaries of the strict calendar, a US House of Representatives Ways and Means’ subcommittee hearing on currency manipulation is being held today. With a Democrat majority in both houses of Congress and the US trade imbalances looming large, the government may raise the bar on its protectionist agenda before the Summer recess.
The benchmark Dow Jones Industrial Average was barely able to eek out a positive close Tuesday to keep the record-breaking trends going. However, early price action in the equities markets once again threaten to put the indices off their highs. By 15:05 GMT, the Dow was the only gauge in the black with a miniscule advance to 13,310.05. The S&P 500 was slipping on a 0.05 percent decline to 1,507.01 while the NASDAQ Composite was loosing ground with a 0.38 percent drop to 2,561.89. Flipping through the headlines, big M&A deals were clearly giving way to good old fashion earnings reports. Taking the lead with its own numbers, Cisco Systems marred its 34 percent increase in profit and 21 percent rise in revenue by forecasting a decelerated pace of revenue growth. Shares of the tech bellwether contracted $1.85 or 6.5 percent to $26.51 on the news. Making a sector jump, Toyota Motors announced a 9 percent jump in profits over the first three months of the year. Shares of the quickly rising auto leader dipped 0.6 percent to $119.74.
Predictably, action in the treasuries market was under wraps ahead of the FOMC decision. The ten-year T-note was off 2/32nds at 98-30 as its yield rose 1 basis point to 4.832 by 15:05 GMT. Bonds were traded a modest 4/32nds lower to 99-01 while their own yields added a basis point to 4.811.