Dollar Off to a Slow Start

As the currency market slowly came to life in the East, the EURUSD quickly found a bid.  From a base around 1.3190, the pair steadily marched 120 points higher to set a new five week high. Suggesting a consistency in dollar selling, the British pound pair followed suit with a 165-point run of its own; but range resistance seemed to be back in the picture at 1.9745. The 85-point dive in the USDCHF was also presented with a hurdle in the 1.21 figure which has proven to be tough for both longs and shorts.  Finally, USDJPY was breaking with the trend as closed Japanese markets and confusion over possible BoJ rate policy going into the new year kept the pair range bound.

Since last week, the economic calendar has received a face lift that has essentially countered any bullish positioning in the dollar going into the opening sessions of 2007.  Originally set for release today, the ISM's manufacturing survey was pushed back to Wednesday, leaving little-to-no fundamental event risk for the first day of trade. With these revisions in mind, the only indicator left on the board was the third tier, weekly ABC Consumer Confidence read.  Though this will likely offer little influence in the dollars meanderings it will continue to build the case for domestic spending. Going into the New Year, with economic growth crawling along, consumer spending will play a central role in GDP in the first half.  The real risk lies in the coming days numbers.

With the ISM manufacturing report pushed back one day, Wednesday now looks packed.  The ADP employment report, November construction spending indicator, and the minutes of the December 12th FOMC meeting were already on deck.  However, the factory read holds the greatest potential as bears seek every piece of data they can to punch a hole in dollar support.  Moving along, Thursday is interspersed with a number of indicators, but caution could anchor the majors as traders approach the employment statistics.

Leading into Decembers NFPs, a few nuances may lay out the groundwork for an official reaction on the news.  One factor for the market to hone in on is the indicators affinity for revisions. A big adjustment to Novembers numbers could be even more significant for than the print itself, should the reports continue to fall closely in line with expectations.  Furthermore, if the current months figure falls close to the markets expectations and the previous read realize a smaller amendment, the belief that employment is stabilizing could sap the market-moving title attached to the labor statistics. Though global stock indices were enjoying a green start to the year, US equities were unable to participate as all the US exchanges were closed due to the National Day of Mourning following the passing of former President Gerald Ford.

Already looking ahead to tomorrow, anxious stock traders will be looking for a repeat rally in Asian and European markets tonight so those in the US can jump on the band wagon. Government debt was little moved in Mondays shortened trading session.  The ten-year note was trading only 4/32nds higher at 99-17 by 16:30 with its yield off 2 basis points at 4.684.  Longer-termed bonds were 10/32nds higher at 95-15 with a yield also down 2 basis points to 4.789. 

Kathy Lien is the Chief Currency Strategist at Forex Capital Markets. Kathy is responsible for providing research and analysis for DailyFX, including technical and fundamental research reports, market commentaries and trading strategies. A seasoned FX analyst and trader, prior to joining FXCM, Kathy was an Associate at JPMorgan Chase where she worked in Cross Markets and Foreign Exchange Trading.