Dollar Works On Its First Day Of Gains In Seven

The benchmark dollar offered mixed results across the majors Monday morning as traders awaited their first taste of fundamental action from the US economic calendar. With the first indicator, in a string of housing reports scheduled for release this week, due in the afternoon; the greenback may find its stride early.

Before the release, the liquid EURUSD pair was holding a 50-point range below the 1.3345 highs set on Friday. Conversely, USDCHF broke rank and looked to retrace some of the steady losses from last week. The gradual move against the franc began on a bounce off 1.2050 that easily marched to 1.2150 before wavering. Friday’s big break in GBPUSD was also battered back to 1.9385, though buying pressure carried it back to 1.9475. Finally, USDJPY rallied over 150 points to 117.80 on speculation the Bank of Japan would offer stable commentary at its upcoming policy meeting.
The morning hours of the US trading session offered few tangible fundamentals for currency traders to grasp onto. However, in the absence of scheduled releases from the US economic calendar, the markets filled in the gap with the bullish sentiment in equities. For the past few weeks, the greenback (along with almost every other currency) has been wrapped up in carry-trade flows that have sent volatility measures soaring. While the action in the prime carry trade pairs was among the most abundant, the activity went well beyond the boundaries of FX. In fact, it seemed the over-extended carry trade was just awaiting a definable trigger to collect capital gains; and the market deemed that event to be the broad risk-aversion that began in emerging countries’ equity markets. Now the US has its own worries to concern dollar bulls: namely the sub-prime mortgage sector. Though accounting for only a small fraction of total mortgages, the sub-prime group can be used as a leading indicator to consumers’ ability to facilitate current interest rates. Since those in the specific lending group are prone to defaults and typically qualify for optionable adjustable rate mortgages, they are particularly sensitive to interest rates.
Going into the new week, fears surrounding the sub-prime mortgage have not diminished. In fact, looking ahead to the key US economic releases due this week, every one will is related to interest rates and the housing market. Starting with today’s NAHB industry health report, the residential building market will be fully covered. The most forward looking number for the sector, activity gauge is expected to cool for the current month as lenders are forced to bolster their reserves and turn away more lenders in the wake of the sub-prime upset. Looking ahead, the market will hone in on housing starts, building permits, the weekly MBA mortgage applications and existing home sales to give the market its full check up. But no other indicator may prove more influential and leading for housing than Wednesday’s FOMC meeting. Though few changes are predicted, the market is expecting some sort of response to the last week’s pick up in consumer-level inflation and the default scare in distressed mortgages.
Benchmark equities indices were deep in the green Monday as a flurry of M&A data and strong performances in Asian and European markets offered a strong foot hold for US shares. By 15:35 GMT, the S&P 500 was trading 0.96 percent higher at 1,400.30 to lead the pack. Following suit, the tech-heavy NASDAQ Composite rose 0.91 percent to 2,394.17 and the Dow added 0.87 percent to rise to 12,215.92. From the list of market-movers, a few European banks were making headlines. Amid reports that ABN AMRO was in talks to merge with Barclays, shares of the former jumped $3.40 or 9.41 percent to $36.94. Elsewhere, DaimlerChrysler received an analyst upgrade as it left open all avenues to turn the business around. Shares of automaker jumped 3.2 percent to $74.22.
Treasury yields were put on a slow advance Monday morning as equities were set into a steep pitch and investors look forward to a Fed meeting that will end with a consistently hawkish bias. The benchmark ten-year note was off 6/32nds at 100-14 by 15:35 GMT while its yield tacked on 2 basis points to 4.567. Bonds followed suit with a 11/32nds dip to 100-18 as yields added 2 basis points to 4.714.