Dollar Traders Position Ahead Of Busy Weak

A heady mix of anticipation and caution is leading the dollar to start the week on an unstable footing. With the calendar slowly building steam with tomorrow’s few releases, the threat of small, sharp swings on overrun stop entry and stop limits grows.

Monday price action reflects a small trend of traders squaring the dollar longs encouraged by last week’s strong data. The EURUSD rode once again off of an overnight base around 1.29 to advance 70 points during the North American session. Confirming the broad greenback concern in the market this week, the GBPUSD offered a similar chart pattern with a session low late around 1.9550, and a subsequent high 60 points higher. While event risk is a burden, the draw of the USDJPY carry proves greed overrides fear. Since liquidity returned to the market in Asia, USDJPY has rallied 75 points to a new four-year high around 120.20. Finally, solid resistance has kept USDCHF 1.2560, but a spike low to 1.2510 was short-lived and unconvincing of any serious shift in the winds.
On the fundamental side, FX traders were cautious in taking any dollar-based trades knowing that indicators scheduled for release this week could facilitate whip-saw action that would sabotage break out setups. While the potential energy for the US calendar was extraordinary, there was no kinetic counterpart set up for Monday morning. The action will begin in earnest tomorrow, when the Conference Board releases its measurement of January consumer confidence. An outlook is already painted by the market’s consensus and the preliminary issue of the University of Michigan number for the same month. According to the average economist forecast, the most recent number from the Consumer Board will be only slightly higher than December’s. What’s more, the jump in the U of Michigan on cheaper gasoline and a strong wage and employment trend tempers positioning in favor of the dollar. This means that a strong showing will fully be lost in the market as traders immediately shift their attention to Wednesday’s solid lineup. However, if a surprise contraction finds its way across the wires, panic that expectations have been pumped up too high could lead deeper anti-dollar moves. This would relieve some of the pressure on the majors by pulling them back from the large technical levels being tested across the board.
Equities indices started the week off in the green as relief in oil prices leveraged optimism tailored by merger news and a promising news release from Intel and IBM put out this past weekend. By 16:40 GMT, the Dow Jones Industrial Average was leading a slow race with a 0.18 percent advance to 12,509.77. Only slightly off the leader, the NASDAQ Composite grew 0.17 percent to 2,439.62 while the S&P 500 pulled 0.07 percent ahead to 1,423.12. Though the advance was tame in the morning hours, the headlines were brimming. Intel paced the action with a $0.47 rise to $21.00 for 2.3 percent as investors worked off of the company’s joint announcement with IBM that it has developed new technology to make chips smaller and faster. Elsewhere, in M&A news, Bristol-Myers Squibb shares rallied $1.52 or 5.8 percent to $27.73 after an early report suggested the company may announce a merger with Sanofi-Aventis.
Like the dollar, treasury yields are hanging at precarious heights after touching five month highs. This leverages the risk behind the possibility of an unexpected limp in the week’s numbers. The ten-year Treasury note was unchanged at 98-03 by 16:40 GMT with a 4.871 yield. Bonds were only slightly lower with a 1/32nd slip to 92-24 leaving its yield untouched at 4.974.

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