Currency Traders Stick to the Sidelines Before FOMC, Jobs Report

(Bloomberg) -- The dollar was little changed Monday as investors kept their powder dry before the start of the Federal Open Market Committee meeting Tuesday and the release of the April U.S. employment report Friday.

May Day holidays in Asia and Europe also made for muted trading. The greenback was mixed against its G-10 peers, with gains against the pound and yen and the biggest losses coming against the Australian and New Zealand dollars. Currency traders largely stuck to the sidelines even as comments from Treasury Secretary Steven Mnuchin on the possibility of issuing ultra-long bonds pushed yields higher.

• While traders see little chance of a Fed interest rate hike this week, an increase is seen as much more likely in June, and is fully priced in by September, futures show. The April nonfarm payrolls report, due Friday, is expected to show job gains of 190,000, according to median estimate in a Bloomberg survey.
• The dollar earlier fell to a session low after ISM manufacturing index dropped more than expected. The April gauge declined to 54.8 against expectations for a drop to 56.5. Other data showed below est. personal income and spending and in-line Markit PMI. Mnuchin also said that it will probably take 2 years to return to 3 percent GDP growth "and then we can have a sustained level"
• Markets breathed a sigh of relief overnight after Congress agreed on a spending bill that will keep the government running until September; uncertainty over a possible government shutdown over the weekend had been a cloud hanging over the dollar last week, traders said
• At the same time, traders are trying to balance other conflicting risk events, as they eye the second round of French presidential elections to be held on Sunday, with centrist Emmanuel Macron still leading rival Marine Le Pen in polls that also show a large percentage of uncommitted voters
• EUR/USD pared gains to trade at ~1.0906, remaining in familiar territory from last week when the pair found support near 1.0850 while stalling repeatedly near 1.0950; pair may feel the influence from large option expiries this week, with prominent strikes noted between 1.0900 and 1.1000. EUR continues to find tech support near its 200-DMA at 1.0836
• USD/JPY trading at ~111.80 after rising to a session high of 111.93. The dollar is likely to find offers surrounding 112.00, extending to 112.20, a trader in Asia said; order books have thinned ahead of Golden Week holidays that begin Wednesday. Stop-loss buy orders are in place above 112.30, just above resistance from the March 31 high at 112.20
• AUD/USD remained near session high of 0.7540 in recent trading as pair takes advantage of a defensive USD and as a round of model-driven stops were tripped above 0.7530, a trader in Toronto said. AUD demand may be tied to position squaring ahead of the RBA rate decision tonight, no change is expected and the case against more rate cuts keeps getting stronger, analysts say. AUD climbed just above resistance from the 100-DMA at 0.7527, may find further resistance at the 200-DMA 0.7552

To contact the reporters on this story: Alexandria Arnold in Seattle at abaca3@bloomberg.net, Dennis Pettit in New York at dpettit5@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Greg Chang