Dollar Sees High Volatility On Low Liquidity, Few Indicators

The effects of thinning liquidity were already starting to show through for the dollar Thursday morning. Despite a lack of solid economic indicators on the docket, the majors reported a considerable spike in volatility that drove a few pairs to break serious technical levels.

Perhaps the most notable move was the 90-point rally in EURUSD, that carried it clear through 1.3400 resistance before spot put in a fresh two-year high at 1.3442. Playing follow-the-leader, USDCHF finally pulled away from resistance around 1.2220 on a near 100-point dive to 1.2125. Offering far more volatility than most of the other majors, GBPUSD began its own precipitous drop from 1.9775 early in the European session. A BoE rate decision drove the pound to 1.9676 and the dollar selling later in the day only corrected 70 points of the over 100-point drop. Finally, keeping to its contradictory nature, USDJPY showed suppressed action. From a 119 high, greenback selling could only carry USDJPY down to the firming 118.50 support level.
As many traders in the western world square their positions ahead of the holiday weekend, many volatility-loving FX players see the opportunity in the thin liquidity before the week’s end. Though most of the global bank holidays are scheduled for Friday, price action in US and European capital markets was already trailing off. In the US, the remaining diehard traders had only the weekly jobless claims data to work with. According to the Labor Department’s data, first time filings for unemployment benefits rose by 11,000 to 321,000 through the final week of March, while rolling claims fell to a two month low 2.492 million. Altogether this numbers added little to the standing consensus for tomorrow’s nonfarm payrolls. While a pick up in initial claims is undesirable, the average for March was well below that for February.
Taking a more involved look into tomorrow’s employment report, the numerous related indicators that are being used for speculation have done more to lower expectations from the official consensus rather than support it. Starting with the most frequently overlooked indicators, both the Challenger Layoff and Monster Employment Indices printed improvements for March. The Challenger survey printed a 24.6 percent drop in firings from the same period a year ago, the sixth consecutive contraction. At the same time, the Monster’s online figures relayed a 13 percent yearly pick up after a 23 percent advance in February. Reversing much of this optimism, both the Institute of Supply Managers manufacturing and services surveys showed significant declines in their employment components. The factory number reported yet another contraction in hiring practices as the sub-gauge hit its lowest level in nearly three-and-a-half years. Service-based firms, which account for a far greater percentage of national employment, released an employment still above the contraction/expansion cutoff, though it was still marking its lowest position since July of 2004. The final say from the ADP number only muddles the picture. Private payrolls missed the market’s consensus with a 106,000 print, though this beat out the 65,000 from the previous month. With no solid bias formed in the market, tomorrow’s NFPs could work with the volatile mix of a surprise and low liquidity to produce big moves.
The stock market was hardly moving Thursday morning as junior traders were left to tend the ship through stable waters. By 15:20 the NASDAQ Composite was the biggest mover among the major indices with a 0.15 percent advance to 2,462.34. Both the Dow and S&P 500 were only marginally lower at 12,523.71 and 1,439.33 respectively. From the list of market movers, a patent settlement between Nokia and Qualcom moved both stocks. On the order for Nokia to pay $20 million to Qualcom for use of one of its licenses, the former’s share price rose 1.4 percent to $23.67. Qualcom’s shares, on the other hand, slipped 2.6 percent to $42.56.
Investors were looking to usher in a slow end to the week for the Treasuries market as well. The ten-year note slipped 1/32nd to 99-24 by 15:20 GMT as its yield added a basis point to 4.654. The Thirty-year bond edged 2/32nds lower to 98-15 as its own yield rose a basis point to 4.847.