The dollar calendar looked to get all of the key economic data for the week out of the way early. Mondays ISM non-manufacturing report was the only high-level indicator on tap; and not even its better than expected print could challenge the well-established technical levels the market has carved.
Since the open of the weeks liquid hours, EURUSD has steadily declined towards key support seen around 1.2880/2900. With help from dour UK data, the greenback won a considerable rally against the pound in the London hours to pull the pair 130 points below overnight highs to 1.9540. Stopping short of its own well-regarded resistance level, USDCHF has been relegated to a 50-point congestion band with week support at 1.2470. Finally, speculation behind the G7 meeting easily propped the yen over the modest dollar action for the session. From early morning highs, USDJPY fell 65 points to stall just above support marked at 120.10.
While dollar-instigated price action was rather tame Monday morning, the fundamental impetus for a drive was as high as it would get for the week. After releasing their disappointing manufacturing report last Thursday, the Institute of Supply Managers service sector report was welcomed by dollar bulls. Expected to slip slightly, the January survey instead jumped to an 8-month high 59.0. Since service-based businesses make up for an estimated 80 percent of the economy, the read was a boon for the Federal Reserve policy board which foresaw the economy growing at a moderate pace in the medium-term. On the other hand, the component gauges offer evidence that the improvement in activity was a one-off. To start things off, the most interesting number was the 47 read in the inventory gauge, the lowest since June of 2003. After building up inventory through the second half of 2006, burning off excess stock could leverage a rebound in stalled production. However, orders data has yet to materialize. In the ISM data, the domestic orders gauge fell marginally to 55.4 while export orders sank 6.5 points to 55.0. Whats more, efforts to conserve profit margins through cost cutting have begun to scar the employment component. Falling to its lowest level in a year, the labor read may foreshadow constrained smaller nonfarm payroll additions and easing wage pressures in the months ahead.
Looking ahead this week, there are few scheduled economic releases on deck to threaten a spike in dollar volatility. Conversely, a number of planned speaking events by key economic players may light a fire under the greenback in the absence of market moving data. Most of the risk is concentrated on Tuesday. From the Federal reserve, Michael Moskow, Janet Yellen and Chairmen Ben Bernanke are all on board to offer up prepared speeches. All else equal though, Treasury Secretary Hank Paulsons testimony at the House Ways and Means Committee is likely to generate more interest.
After a strong performance last week, equities markets opened Monday with choppy trade conditions. By 17:00 GMT, the biggest push was won by the bears. The tech-heavy NASDAQ Composite led volatility with a 0.18 percent decline to 2,471.42. Elsewhere, the S&P 500 was off 0.14 percent at 1,446.38 while the Dow was fractionally higher at 12,655.90. Though the major indices were finding trough in picking a direction for the session, a few market leaders were popping up on the radar. Blue-chip Wal-Mart saw shares jumped 1.6 percent or $0.75 to $48.83 after announcing a 2.2 percent increase in comparable store sales last month. From the tech sector, semiconductor manufacturer KLA-Tencor released quarterly earnings short of analysts expectations. Despite the poor showing KLA-Tencor shares rallied 3.4 percent to $51.71.
Treasuries found little reason to break formation with Treasury Secretary Paulsons testimony set for Tomorrow and Wednesday. The ten-year note was trading 3/32nds higher at 93-21 around 17:00 GMT with yields off a basis point at 4.806. Little different, the thirty-year bond rose 5/32nds to 93-21 while its own yield shed a single basis point to 4.911.