Though Monday’s calendar was issuing only a trickle for fundamental data flow, a healthy combination of anticipation for the coming day’s events and relief from the weekend’s G7 gathering kept the dollar in motion. The greenback’s move against the benchmark euro characterized the general sentiment across the majors.
From an intra-day high near the range top at 1.3040, the EURUSD dropped over 100 points. Acting as a near-perfect hedge, USDCHF rallied at almost exactly the same time for its own 100-point move to 1.2555. Unable to escape the broad dollar buying, GBPUSD was driven 130 points lower to mark a monthly low at 1.9440. Looking back, the only pair to shirk the trend was USDJPY which topped out around 122.10 before retracing to 121.55.
Between price action and the official economic calendar, the former offered the true tale of action for the US currency. The only officially scheduled indicator due for release today was the government’s monthly budget statement which jumped to a $38.2 billion surplus last month. This was below the market consensus and greater than December’s number; though any combination of statistics from this report would hardly impact the dollar.
Instead, FX traders were more concerned with the impact of the G7 meeting from this past weekend and a sharp drop in crude oil prices on position traders’ greenback valuations. The meeting of the finance ministers and central bankers from the seven largest industrial economies certainly carried with it a great deal of event risk. The dollar was not under specific pressure, but rather the entire carry trade strategy. However, with only ECB President Trichet and Japan’s Finance Minster Koji Omi delivering a weak warning against loading up on “one sided bets” and positioning against Japan’s economic strength, there seemed little to upset the balance of the lucrative carry.
Elsewhere, energy prices are beginning to exert their influence outside the commodity bloc. After running up to $60 per barrel in the past few weeks, crude prices made a sharp turn Monday. The drop was triggered by a report from OPEC head of research that foresaw a 300,000 barrel per day oversupply of crude in the second quarter. The next meeting for the energy group is scheduled for March 15th, yet with the previous production cuts not yet fully engaged, few are expecting additional reductions. Reverting back to the US calendar, event risk is back on the table for the dollar traders over the coming days.
Wednesday will mark the true fundamental start to the week as Fed Chairman Ben Bernanke puts in his testimony to the Senate. With the new Democratic majority in Congress looking to win over the public’s support, there will likely be a lot of back and forth over the strength of the economy. Later on, the market will keep a close on the number of housing releases scheduled for the final two days of the week and the manufacturing data due on Thursday. Altogether, this data will test whether currency traders believe an economy is as strong as its weakest sector.
The equities market was held consistently in the red Monday as a number of mergers showed signs of falling through. The Nasdaq Composite led the way with a 0.36 percent drop to 2,450.95 by 17:30 GMT. The S&P 500 trailed with a 0.17 slip to 1,435.56 while the Dow edged 0.08 percent lower to 12,570.90. There were only a few top market movers that were spurred by anything but an analyst’s revaluation. Home Depot saw its shares rally 1.2 percent to $41.49 after the market caught wind that the firm went to Lehman Brothers to discuss a possible sale, spinoff or IPO of its wholesale supply branch. In M&A action, the Bristol-Meyers Squibb and Sanafi-Aventis deal may be on the rocks. Shares of Bristol-Meyers dropped 3.3 percent or $0.93 to $27.59.
Treasuries were little moved ahead of the Federal Chairman’s testimony later this week. The ten-year note was quoted 2/32nds off its open at 98-21 with its yield a basis point higher at 4.798 by 17:25 GMT. Thirty-year notes were off 4/32nds to 93-27 as yields tacked on a basis point to 4.899.