After a week of heightened volatility and key technical breaks for the dollar, things started off on a soft note Monday morning in the US session. For fundamental traders, some hawkish Fed speak and healthy speculation over the coming days’ economic releases was reason to keep the greenback steady. On the other hand, the technical community had their own barriers to concern themselves with.
EURUSD was treading water in a modest, horizontal 30-point band below 1.3360, eyeing a new ceiling in 1.34 which was former support until last Friday. The dollar was little moved against the British pound as the market weighs the momentum in the GBPUSD’s recent decline and a long-term rising trendline pulling up support. Recently, the pair was tracking out a 45-point area of congestion just below 1.97. The usual carry pairs were similarly little moved through the day, though they were seeing a little more favor for the dollar. USDJPY was pushing up against 121.80 resistance with temporary support only 30 points lower. Finally, USDCHF was in a shallow pitch trend channel that had difficulty with overtaking 1.24.

There were no notable economic indicators crossing the wires this morning, though currency traders had more than enough to trade off. Since Asian liquidity first sparked activity in the overnight, FX traders the world over have concerned themselves with the details of the Reserve Bank of New Zealand’s recent intervention. Not since the currency was allowed to freely float in 1985 has the central bank attempted to alter exchange rates. However, the policy group had repeatedly said the high level of the national currency was ‘exceptional and unjustified in terms of the economic fundamentals.’ For NZDUSD specifically, the RBNZ’s efforts pushed the pair 2.2 percent lower in less than 12 hours. Beyond, this specific pair though, the unusual policy action has greater implications for risk appetite and could encourage copy cat policy shifts from central banks in other industrialized nations. The Bank of Japan has come under intense political pressure from its trade partners for the low level of the yen. Should BoJ officials follow suit and intervene (they have done so on a number of occasions in the past), it may genuinely upset confidence in the carry trade and overall tolerance for risk. While the BoJ and RNBZ’s reserves are not deep enough to turn the market on their own, they may be able to raise volatility and shake out enough capital behind the passive carry trade to build momentum in that direction.

While the market waits to see how the surprise intervention move in New Zealand plays out, dollar traders will move look back to the US slate for direction on their own trades. Despite the lack of any high level market moving indicators from the calendar this morning, fundamentals were still in play as a couple Federal Reserve members opined on their outlook for growth and inflation. Chicago Fed President Michael Moskow retained his hawkish slant on an otherwise neutral statement. He reasoned that growth should return to trend levels this year and that the current target rate is ‘appropriate’ for now. Though, he maintained that inflation above the group’s target as the biggest risk going forward. At the same time, Cleveland Fed President Pianalto said the pain in the US housing market wasn’t curbing consumer spending. And, since domestic demand was supporting price growth, she felt comfortable in deeming current inflation as ‘uncomfortably high.’ Looking ahead, there are few indicators scheduled for release tomorrow, though things should pick up beyond that. Retail sales and the Fed’s Beige Book should raise the stakes on volatility. After that, inflation will take center stage as gauges of wholesale and consumer-level price growth offer support for expectations that the Fed will keep rates steady through the year’s end.

The US stock market finally settled as the global risk aversion wave receded and the macro docket allowed traders to choose their own trends. By 15:25 GMT, the Dow Jones Industrial Average was pacing the slow pace of decline in a 0.11 percent dip to 13,409.11. Following close behind, the Nasdaq Composite was 0.1 percent off its open at 2,570.85 while the S&P 500 slipped 0.08 percent to 1,506.53. Scanning the sparse top movers list, it was clear there was little corporate or M&A news steering action. In terms of percentage change, franchise accountant H&R Block was putting up respectable numbers with a 4.8 percent jump to $23.59 after receiving an analyst upgrade. Staying in tune for the latest deal making, there were reports this morning that General Electric and Microsoft were contemplating a joint bid for Dow Jones that would rival News Corp’s $5 billion offer. Shares of GE and Microsoft were little changed with the former up 0.2 percent at $37.40 and the latter climbing 0.3 percent to $30.13.

Though there was little concrete data for treasury traders to work with, they had little trouble in extending last week’s trend in pushing yields higher. The ten-year note was off 8/32nds from the open at 95-03 as its yield rose 4 basis points to 5.135. The thirty-year bond lost 17/32nds to 92-18 while its own yield added 4 basis points to 5.246.

John Kicklighter is a Currency Strategist at FXCM.