Dollar's Slow Start Opens Up To Payroll Follow Through

After two week?s of fully stocked economic calendars, this week?s data flow is shaping up to be rather light. With only a consumer credit number on deck this morning, dollar moves will be limited to post-payroll after shocks and position building ahead of Wednesday?s FOMC decision.

From the majors, the dollar?s declines were modest at best as traders looked for fundamental momentum. Against the benchmark euro, the dollar held a 40-point range between 1.3590 and 1.3630. Blurring the limits of once staunch technical levels, USDCHF baubled in a tight, 30-point band of congestion around 1.21. Just recently, the greenback was able to dip below the 1.9950 floor against the pound sterling, though the move hardly gained the necessary momentum to retrace the 130-poing advance since early Friday morning. Finally, USDJPY was consolidating its declines from 120.50 resistance just below the psychological 120 level.
Conditions in the currency market were certainly conducive to range trading. Moves that may have been spurred in the early morning were hampered as Asian traders come back from their Golden Week holidays while London markets were closed for a bank holiday. Rolling into the US session, the only noteworthy economic indicator on the docket was the March consumer credit report. Scheduled for release later in the afternoon, the measure of non-mortgage lending is expected to have risen from $3 billion to $4 billion for the period. While the US consumer?s fondness for credit certainly raises problems for the long-term, it could support dollar bidding this week. Aside from signaling a rise in overall consumer spending, the number also precedes wholesales and retail sales numbers due Tuesday and Friday respectively. After Friday?s shortfall in payrolls, anxious traders will certainly be monitoring data to see if and when a turn in labor trends will dampen domestic consumption.
Concerning the broader market, central bankers from the G10 met under the auspices of the BIS to discuss international market conditions. At the end of the meeting, ECB President Jean Claude Trichet offered a brief wrap up of the meeting. One topic that should be noted by market participants in the dollar arena as well as currencies and equities the world over was that the group was concerned that investors may be undervaluing risks. Trichet commented that spreads were narrow, risk premia was exceptionally cheap and volatility was low on a historical basis. Given these conditions, he suggested “a disorderly correction of this possible under pricing of risks was” a possibility. For equities markets, this raises awareness for global equity markets at their highest levels since the turn of the century. Tailoring the outlook on risk to the currency markets, a ‘disorderly correction? would certainly be unfavorable for the carry trade which has already had a few scares over the past months.
Bullish sentiment in the equities markets seems endless as the benchmark indices pick up where they left off last week by pushing new highs on M&A news. By 15:25 GMT, the Dow was pacing the market with its 0.27 percent advance to 13,299.81. At the same time, the S&P 500 was trading at 1,509.28 after picking up 0.24 percent while the NASDAQ Composite sat on a 0.14 percent rise to 2,575.71. Looking into the Dow Jones Industrial Average?s move, the broad gains across the 30 component firms was led by a sharp rally in the Alcoa?s shares. Shares of the aluminum-giant jumped $2.44 or 6.8 percent to $38.10 on the news the company had made a $33 billion offer for Canadian-based Alcan. Elsewhere, the ANB Amro deal is becoming a little more complicated. Still in Barclay?s crosshairs, ABN is trying to sell its LaSalle branch to put the Barclay?s deal back in motion. Today? the Dutch bank said it was turning down the $24.5 billion deal offered for LaSalle by a bank consortium lead by the Royal Bank of Scotland in favor of the Bank of America $21 billion bid due to fewer strings and contingencies. Shareholders were clearly displeased with the move as shares of ABN fell 2.0 percent to $48.89.
Mimicking the modest moves in equities and currencies, the debt market was settling before Wednesday?s FOMC meeting. The ten-year treasury note was trading 3/32nds higher at 99-31 by 15:25 GMT, with its yield off a basis point at 4.626. Longer-termed bonds had a little more fuel in their 9/32 advance to 99-13 as yields slipped 2 basis points to 4.786.