The greenback was generating a little heat on a few second tier-economic releases Thursday morning; but the market was holding back on placing its big positions until the hedge fund mess unfolds or a big indicator comes along to shake things up.

Price action was pushing in the dollar’s favor, though broader ranges were holding up to the low volatility conditions prevailing this week. The benchmark EURUSD was finally making a respectable move below 1.34 when the pair extended its 65-point slow to find a temporary floor at 1.3370. Finding its own dollar buoyancy, USDCHF was working on its first green bar in a week. The pair was nearly 70 points above Wednesday’s intraday low on a test of 1.2425. Reversing its behavior from the last few days, the pound was carving a 50-point range just below a possible double top around 1.9950. Finally, resistance in USDJPY of 123.75 was proving too much for the dollar’s weak advance. Though, the tight range below this level suggests buying pressure is building.

For those uncomfortable trading off indirect fundamentals, the tidy economic calendar was offering guidance through a few lower rung indicators. Of the few reports crossing the wires this morning, the Philly Fed’s manufacturing survey garnered the greatest interest; and subsequently provided the biggest surprise. According to the regional bank’s data, factory activity in the area picked up substantially this month. Expected to report a modest pick up, the survey actually tripled the original forecast when it crossed the wires with a 18.0 print. This was both the highest level and most volatile month-to-month change since April of 2005. Breaking the report down into its components, it was clear that production and investment are on the rebound. The new orders component doubled as the inventories component dropped to its lowest level in a year. Going forward, economists will look to see whether the shipments read (equivalent to finished product) will catch up to orders to confirm a true turn in the manufacturing sector. This Philly read has stoked optimism since it supports a one-year high in the Empire read before it. However until the rebound is verified though doubt will linger as the employment number is tapering off and the future index was cut in half in the June reading.

Also on the docket, but attracting very little attention, was the Conference Boards Leading Indicators Index and the weekly jobless claims figures. The composite Leading gauge for May rose slightly more than expected and gave a promising upward revision in its previous reading. At 0.3 percent growth though, it is hardly confirmation that the economy has weathered the worst. There has yet to be a consistent period of growth in the index, so there is this report offers us this. The weekly claims number wasn’t drawing crowds either, yet its jump to 324,000 through the period ending June 16th raises concerns on the health of the labor market. Payroll reports have been lackluster recently and components from other reports (like today’s Philly Fed survey) suggest employers are lightening the load.

Aside from the tangible indicator releases this morning, the air of caution was still looming over the FX markets (other the asset classes for that matter). Bear Sterns’ floundering hedge fund had $850 million seized by Merrill Lynch. So far, Merrill has reportedly auctioned off only a small portion of the collateralized debt oblications (CDOs) it has recalled; though is holding off on selling the rest. Traders the world over are concerned that a fire sale could lead to a repricing of similar securities which could quickly spread throughout the market. This would be a big blow to many investors (individual and institutional) who are relying on low volatility/high risk trades to achieve returns. For FX, the most dramatic outcome would be serious unwinding of the entrenched carry trade.

Equity traders were trying to curb yesterday’s momentous sell off. Though without a consistent fundamental foundation for the market to work with, the upward path looks like a difficult heading. By 15:55 GMT, the Dow was leading with its modest 0.24 percent contraction to 13,456.67. The Nasdaq Composite was off 0.13 percent at 2,596.63 while the S&P 500 dipped 0.11 percent to 1,511.11. Browsing the large caps, it was clear the market was working on a relatively quiet day. Exxon Mobile was boasting the biggest move of the blue chips with a 1.2 percent pick up to $83.78 with the help of higher oil prices. Scaling down, franchise accounting firm H&R Block saw its shares plunge 4.0 percent to $21.86 after reporting a loss for the quarter and lowered its year end guidance.

Treasury traders were weighing their Fed forecasts against the possible fall out from the Bear Stearns hedge fund liquidation resulting in a directionless morning. The ten-year note was off only 2/32nds at 95-02 as its yield tacked on a basis point to 5.142 by 15:55 GMT. At the same time, the 30-year bond was down 6/32nds with its yield also up a single basis point to 5.255.

John Kicklighter is a Currency Strategist at FXCM.