Dollar Pulls Higher Ahead Of NFP Volatility

A second day without a heavy-hitting economic indicator and yet the dollar firmed up in most of the majors. For a fundamental bearing, traders were drawing on the active week of monetary policy meetings and speculation over tomorrow’s employment report to give the dollar a green light.

For the benchmark EURUSD, the greenback picked up steam to carry the pair 70 points below Asian session highs before resistance started to build around 1.3120. The British pound is proving it is up to the task of offsetting the modest greenback strength as GBPUSD consolidates within its 75-point range above 1.9275 for the second session. Action in the carry trade pairs was exacerbated by a low-yield sell off. From an intra-day touch on 115.55, the dollar rallied nearly 200 points without interruption. Finally, USDJPY caught the carry trade draft with a 140-point rally that has recently stalled just short of 1.23.
Jobless claims were the only scheduled indicators available for fundamental traders to act on Thursday, though the reports effectively fed into building speculation surrounding tomorrow’s nonfarm payrolls. As is normal for the beginning of every month, the Department of Labor’s employment statistics typically guides the dollar even before hitting the wires. This month is no different – though there is a clear divergence between the market’s and the data’s bias. While the greenback has advanced over the past few days, the peripheral jobs numbers have suggested a disappointing payroll report may be at hand. Today, while numbers showed first time filings for unemployment benefits dropped 10,000 to 328,000 in the week ending March 3, the broader trends will likely carry a greater influence. Despite the weekly improvement, the less volatile four-week moving average actually rose to its highest level since October 2005. What’s more, yesterday’s ADP report is still lingering at the back of the market’s subconscious. Though the private payroll number is notorious for its inability to predict NFPs, the recent overhaul in the measurement may lead to substantial improvements for the woefully weak correlation. Conversely, there are still a few indicators that have given optimists a foothold. Both the ISM’s manufacturing and service surveys reported stronger employment growth in February.
Though pre-NFP positioning has fully enveloped the currency market, there were a few other events today that were influencing the dollar. Making his third official trip to China since becoming the US Treasury Secretary, Henry Paulson reiterated the same warnings that he has issued in past visits. Paulson repeated the need for Chinese officials to loosen controls on the yuan and interest rates as well as further opening the nation’s boarders to foreign investment. While his consistency is admirable, the timing of this trip is the more noteworthy quality since the US trade report for January is due tomorrow. Elsewhere, the string of central bank policy meetings this week culminated this morning with a pass from the Bank of England and a 25 basis point hike off of the European Central Bank. With hikes in Europe and New Zealand, central banks could inadvertently put a stopper in carry trade unwinding. If this is true, the relatively high yield behind the US dollar stands to benefit against its cheaper counterparts.
Stocks saw another hearty advance Thursday, feeding into the belief that the panic underlying the global panic last week has dissipated. By 16:30 GMT, the NASDAQ Composite was heading the advance with a 0.98 percent rise to 2,397.96. The S&P 500 was slightly behind on a 0.92 percent jump to 1,404.84 while the Dow rose 0.74 percent to 12,282.49. Giving some indication that things are getting back to normal, many of the top market movers were finding momentum from sales numbers and analyst recommendations. Fast-food leader McDonald’s reported a 5.7 percent jump in global same-store sales, leading shares to levitate 1.7 percent to $43.83. Finding strength in a struggling industry, Ford Motors shares surged $0.33, or 4.5 percent to $7.95 after receiving an analyst upgrade on expectations for a pleasant first quarter report.
Treasuries caught the same hawkish bug infecting the dollar ahead of the nonfarm payrolls report tomorrow. The ten-year note was trading 9/32nds lower at 100-26 with a 4 basis point pickup in its yield to 4.522 by 16:25 GMT. Bonds were off 16/32nds by the same time, while yields climbed 3 basis points to 4.660.