Dollar Mixed As Market Awaits A Fundamental Trigger

Dollar traders had little to go on Monday; and market participants clearly felt uncomfortable running big technical levels ahead of tomorrow?s fully-stocked calendar. Until the right event trigger is found, the majors clearly have their boundaries.

For EURUSD, the rebound from Friday?s 1.3465 low seems to be stalling. Price action in the pair was limited to a 35-point area below 1.3560 - an area that acted as resistance last week. The greenback was holding onto its gains against the British pound. An overnight test and rejection of 1.9850 suggests GBPUSD traders are confident in the freshly found downtrend. From the carry pairs, USDCHF continues to carve a range within a range. An overnight high just above 1.22 marks the top of broader 1.22 to 1.21 congestion, while a shelf low forming at 1.2170 solidifies nearby support. Finally, USDJPY pulled back up towards key resistance seen at 122.50, though the gradual 45-point climb through the night suggests the market lacks the momentum needed to make a solid break.
A lack of economic indicators available Monday morning - and the threat of event risk from a host of reports in the following days - kept the dollar relatively stable at the beginning of the week. Though there were no top market movers hitting the wires today, there were a few interesting exogenous events to take note of. One release this morning that should be processed was the Philly Fed?s Survey of Professional Forecasters. The quarterly report takes outlooks from economists at major financial institutions, universities, research firms and business groups to provide a consensus on inflation and growth trends. From the various polling questions, the most interesting results came from the growth outlook. The outlook for annual growth was revised lower from 2.7 percent predicted earlier this year to a cooler 2.4 percent pace. To counter the bearish implications this may have for the dollar, inflation projections were actually lifted. Core inflation through the second quarter is expected to heat up to a 2.1 percent pace (lifted from a 2.0 percent outlook) while year-over-year PCE is expected to hold between 2.0 and 2.4 percent, above the Fed?s comfort level.
Looking ahead, the risk of a rebound in volatility tomorrow is certainly tangible. Scheduled for release early in the US session are the consumer price index, the Empire Manufacturing survey, TICS and NAHB Housing Market Index. Taking the least-likely mover first, the NAHB and TICS numbers shouldn?t disturb the dollar unless either produces a number that diverges considerably from expectations. One step up, the Empire number may have some influence on the market. Recently, inventories have begun to level out and sales pick up, suggesting production may be on the rebound. If the regional survey confirms this notion, fears that the factory sector will weigh on growth could certainly be lightened. Finally, the top spot on the event risk radar is the consumer-level inflation number, which necessitated an increase in concern from the Fed with its March numbers. Considering the inflation and producer price indicators released before it, April CPI is expected to cool slightly. However, the effects of gasoline prices down further down the line may have been underrepresented in the previous released numbers, opening up a possible acceleration. Certainly the market is preparing for a worse-than-expected print if anything.
The benchmark equities indices were broadly mixed Monday morning as a smattering of deals drives light positioning ahead of tomorrow?s inflation numbers. By 15:35 GMT, the Dow Jones Industrial Average was sitting on the biggest advance with a 0.21 percent rise to 13,353.93. At the same time, the S&P 500 was only marginally higher at 1,506.08 while the tech-laden NASDAQ Composite was working on a 0.28 percent drop to 2,554.96. Scanning the equity headlines Monday morning, there was a clear theme centering on big deals. From the auto industry, DaimlerChrysler announced it had finally found a buyer for its US unit. A winning $7.45 billion cash bid from Cerberus Capital Management for an 80 percent stake in Chrysler helped lift shares of the parent 1.7 percent to $83.41. Sticking to the auto sector, an article that ran this morning in a major US paper said the Ford family is considering selling its controlling stake in the firm. Shares of Ford jumped 4.8 percent to $8.77 on the news. Elsewhere, Merck announced its was selling its generic drug arm for $6.7 billion to Mylan Laboratories. Mylan shares sank 11.6 percent or $2.59 to $19.81 on news of the negative cash flow.
Treasuries were little moved ahead of tomorrow?s inflation and international capital flows data. At 15:35 GMT, the 10-year note was a modest 2/32nds off its open at 98-18 as its yield nudged a basis point higher to 4.68. Longer-dated bonds edged 1/32nd lower to 98-13 though yields went unchanged at 4.851.