Dollar Passivity Unsettled By Geopolitical Speculating

The dollar, for all intents and purposes, was expected to enter a quiet range for the remainder of the week as the global economic calendar thinned out. However, traders still in the market were not disappointed with a sharp jump in volatility after the deadline past for Iran to comply with the UN’s demands for the country to halt uranium enrichment.

Though the market saw a few sharp runs, technicals remained largely intact across the majors. In the overnight hours, the greenback was able to pull down a 65 point advance against the euro to 1.3080, but the market has since retraced nearly every pip of the move. For USDCHF, the same push and pull with the dollar forced the pair off of intraday highs around 1.2440 back to make contact with Asian session lows around 1.2370. No other major currency enjoyed the dollar selling more than the British pound, which pushed 130 points higher through to noon in New York with little sign of giving up its momentum. Finally, the USDJPY, still shaken from the carry trade risk yesterday, sustained its steady advance with another 55-point from Wednesday’s New York session close.
For volatility traders, Thursday’s session was sizing up to be a quiet day with few pieces of data on the docket. On the other hand, exogenous event risk could not be ruled out as the UN’s deadline for Iran approached the zero hour. For months, the Security Council, led by Western powers, has issued verbal warnings for Iran to halt its efforts to enrich uranium. While Security Council has suspects the sovereign nation is pursuing the technology for weapons purposes, Iranian officials maintain it is solely for public energy uses. In the most recent round of back and forth, the UN was awaiting a report from the International Atomic Energy Agency which looked into whether the nation had complied. Not surprisingly, the six page statement affirmed that Iran had not complied and had in fact expanded its operation. This was not at all unexpected given President Mahmoud Ahmadinejad’s frequent rebuke of pressure put upon his government. However, the keen geopolitical risk involved in the deadline was not lost on the market. The UN has already laid out economic sanctions for the country while the US has begun to arrest Iranian nationals in Iraq and urge European financial firms to cut ties with the country. Should the verbal standoff escalate, geographic proximity will need to be weighed against involvement for forex flows.
More tangible for data hounds, the weekly jobless claims numbers and Help Wanted Index helped to mold speculation for the coming labor statistics. According to the government’s calculation, first time filings for unemployment benefits dropped from its highest level since September 2005 to a 332,000 in the week through February 17th. This dropped was less than expected. At the same time though, continuing claims, which made a similar high in its previous reading, beat expectations with a substantial drop to 2.509 million people. Overall, these numbers couldn’t alleviate the cautious outlook for NFPs. Even the Conference Board’s reading of the Help Wanted Index for January offered little clarity. Dropping back from a six-month high, when the drop in demand for construction job is factored out; the indicator supports the notion that firms are holding onto their employees.
Benchmark equities indices were fluctuating between minor gains in the morning and considerable losses by mid-day. By 16:15 GMT, the Dow was pacing the pack with a 0.23 percent dip to 12,708.93. The S&P 500 edged 0.17 percent lower to 1,455.21 while the NASDAQ was off a modest 0.05 percent at 2,517.20. Despite the broad move lower today, many of the day’s outstanding outliers were gainers. Key among that group organic grocer Whole Foods whose stock rallied $5.40 or 11.8 percent to $51.10 after it announced it had reached deal for acquiring Wild Oats. More in line with the market, the construction firm Toll Brothers saw its shares drop 1.7 percent to $32.32 after posting a 19 percent slide in revenue and a 67 percent drop in net-income.
Geopolitical risk didn’t really pan out through Treasury price action by mid-day Thursday. The ten-year note was trading 7/32nds lower at 99-08 by 16:15 GMT with a yield 3 basis points higher at 4.720. Thirty-year bonds contracted 14/32nds to 98-29 with a similar pick up in yields to 4.819.