Dollar Slowly Gives Up Ground As Payroll Speculation Heats Up

Once again, the greenback was experiencing the quiet before the storm. Wednesday’s New York session started off a two-day period that will pass without a top tier indicator. Indeed, the only event that is expected to offer any kind of scheduled dollar movement will be this afternoon’s Fed Beige Book.

Price action among the majors suggested a bias for greenback selling. EURUSD rose to 1.3155 to add a mere 25 points to its gradual advance. Moving in the opposite direction, but under the same pretext, USDCHF slipped nearly 50 points from 1.2250 resistance. On the back of nearly two weeks of extreme volatility, the yen’s advance seems to have been snuffed out – at least for now. By mid-day in the New York session, USDJPY had carved out a congestion zone between 116.20-65. Finally, the dollar was able to pull down a 100-point advance against the British pound in the Asian session, though the move couldn’t be sustained as bids pushed the pair off of range lows around 1.9265.
It was easy to garner from price action that the US economic calendar was rather barren Wednesday. By the morning hours, the only noteworthy prints were the weekly MBA mortgage applications and the as of yet unproven ADP employment report. Without doubt, the ADP report was the more pertinent of the two. With nonfarm payrolls just around the corner, speculators are moving back into the market in droves. This time around, the bigger than expected drop in the private employment gauge made few waves. Over the past few months, the indicator’s ability to predict the government’s labor report has changed from doubtful to almost non existent. However, the group responsible for putting together the report has recently announced improvements that they say should boost its correlation to the NFP report from a relationship somewhere in the 60-percentile to the 90s. Key changes were a substantial increase to the sample size, adjustments made to reflect Labor Department revision and a weekly time frame (rather than monthly). If these improvements translate into a better forecasting number, then the 57,000 print from ADP for February could have better prepared dollar traders for a disappointment on Friday. Last month’s reading was the weakest since July of 2003.
Looking ahead, there is still a chance for a fresh dollar move before the session roles over. At 19:00 GMT, the Federal Reserve is expected to release the Beige Book to the public. The standard summation of economic activity for the central bank board members, the report may shed some light on how the Fed will respond to a few questionable areas for market participants. For example, the wild fluctuation in housing numbers, and to a lesser extend the manufacturing activity readings, are expected to draw policy markers’ interests. Another event that could sway fundamental traders on their dollar positions is Chicago Federal Reserve President Michael Moskow’s summary and outlook for the economy.
A second day of relatively constrained action in the US’s benchmark equity indices has left many wondering whether or not high levels of volatility is now a thing of the past. By 16:20 GMT, the NASDAQ Composite was leading the pack with a 0.35 percent dip to 2,376.75. The S&P 500 trailed with a 0.17 percent dip of its own to 1,393.07 while the Dow edged 0.06 percent lower to 12,199.74. Aside from the typical high flying tech stocks, the day’s top movers reflected broader sector performance. With the rise and fall of spectacular sub-prime lending profits, Freddie Mac has vowed to restrict loans to the higher default risk group. Shares of Freddie Mac were trading $0.39, or 0.7 percent lower at $54.44 by mid-day Wednesday. Elsewhere, mining shares were performing well as the price of gold entered a steep rebound. Industry leader Freeport’s stock rose 1.4 percent to $56.22.
Low volatility seemed contagious. Treasuries were tracking little movement though most of the morning, perhaps waiting for a Beige Book-triggered rally. By 16:20 GMT, the 10-year note was quoted 4/32nds higher at 100-28 with a 4.513 yield after dropping 2 basis points for the day. The standard T-Bond contract was 3/32nds higher at 101-18 with a yield one basis point lower at 4.652.