Dollar Shrugs Off Strongest Confidence In Nearly Four Years For Fed

If there was any doubt that the currency market is fully immobilized by the risk surrounding tomorrow’s FOMC meeting and US GDP print, then today’s price action converted those holding out. Aside from the New Zealand dollar, the highly liquid majors held to considerable modest ranges despite a stronger than expected consumer sentiment read.

Turning to the charts, the inactivity was exemplified by EURUSD which barely moved after the indicator hit the wires and went on to hold its 40-point range above 1.2945. Following suit, USDCHF stepped down its 40-point channel with a top around 1.2545. Showing some life of its own, debate over the coming G8 meeting in February put USDJPY in motion. The pair worked its way from a double touch on 122 resistance to fall back to 121.50. Finally, the British pound made an attempt to retrace some of its losses, running GBPUSD all the way up to 1.97. However, a dollar push brought the pair down to the next round figure at 1.96.
Indicators were back on the table Tuesday; but as was expected, the market was too enthralled with the greater event risk inherent in Wednesday and Friday’s data to move the dollar. The false market mover today was the Conference Board’s consumer confidence report for January. Under different circumstances, the reports print would have triggered an immediate and broad-based dollar bid. As was expected, the indicator advanced for the third consecutive month. Giving it some historical perspective, this month’s read was the highest since March of 2002. Breaking the indicator into its biggest components, the current conditions survey offered most of the buoyancy. With strong labor and wage trends mixing with cheaper gasoline prices, the outcome was heavily discounted. What’s more, the surge in the University of Michigan’s own preliminary sentiment gauge conformed the consensus to just such an outcome. However, the expectations portion of the survey was considerably more ambiguous. Falling for the first time in five months, consumers reported increased pessimism for business conditions, employment and wages in the coming six months. Typically, these seeds of doubt would not sprout until much later into a dollar rally, but a quiet market is allowing market participants to take their time.
As the sessions wear on, the dollar-based pairs will most likely stabilize and develop tight ranges. Tomorrow’s action will be interesting as multiple fundamental triggers could catalyze price action individually, leave the market empty handed with in line prints or even neutralize each other. Wading through the numerous events it is pretty easy to see where the masses will be looking. From the typically 13:30 GMT launch point, the first read on fourth quarter GDP will gauge the health of the world’s biggest economy. A 3.0 percent consensus is a promising outlook, and anything short could disproportionately disappoint given optimism over the turn in housing and the strength behind the consumer sector. After the growth report has had some time to be absorbed, the FOMC rate decision scheduled for 19:15 GMT will feed into speculation over when, or even if, the Fed will move to ease rates. However, unless there are significant changes to the statement, the event could pass with little market impact. Finally, when traders have a chance to tear themselves away from the calendar, Treasury Secretary Henry Paulson’s testimony at the Senate Banking Committee may provide interesting insight for the currency market. Among other things, he will speak about the exchange rate policy and his headway in the ongoing US/China talks.
Equity markets were on the rise through the afternoon as earnings and analyst upgrades worked with the consumer sentiment read. By 17:45 GMT, the S&P 500 was leading the way with a 0.4 percent advance to 1,426.27. Elsewhere, the Dow rose 0.19 percent to 12,514.34 while the tech-heavy NASDAQ Composite followed with a 0.17 percent gain to 2,445.26. Though the headlines were pocked with analysts recommendations and earnings announcements and outlooks, a few blue-chips stole the spot light. Market giant 3M upset the market when its profit forecast for 2007 came in below the market’s expectations. Shares of 3M dropped $3.68 or 4.6 percent to $75.28. Also putting out its earnings outlook for the year ahead, Colgate-Palmolive shares rose $0.27 or 0.4 percent to $66.98 after besting analysts predictions.
Treasury yields backed further away from its August highs as investors positioned for tomorrow’s FOMC release. The benchmark note rose 5/32nds to 98-03 by 17:40 GMT, while its yield lost 2 basis points to 4.869. T-Bonds grew 9/32nds to 92-23 as its own yield slipped 2 basis points to 4.975.