In a market looking for news, the dollar could be the story of the day on Friday.
As the dollar index surged more than 1 percent Thursday, the euro sank to $1.06 and it continued to fall Friday into the $1.05 range. U.S. Treasury yields rose Thursday but backed off Friday as European yields fell. Stock futures were mixed Friday, after ending Thursday mostly higher with a near half-percent gain in the to 2091 and a 0.3 percent gain in the Dow to 17,958. But there was a decline of 0.3 percent in the small cap Russell 2000.
Bond yields climbed Thursday after a poor showing at the government's 30-year auction. The bond sale resulted in a yield of 2.598 percent, and as Treasurys sold off, the 10-year yield climbed back to 1.95 percent.
"(Thursday) was the most bizarre day. You had this huge rally in the dollar but the big caps stocks rallied, and the Russell and mid-caps sold off. That's contra to the pattern we've been seeing. The intra-day movements are ridiculous. Why did we rally 10 S&P points in the last hour? ... These moves are tough to explain, and I think this is just a lot of noise ahead of earnings, to be honest," said Peter Boockvar, chief market analyst at Lindsey Group. Earnings season gets into full swing when banks and tech companies report next week.
The question among traders was how much of Thursday's inexplicable action had to do with the Fed. Minutes from the Fed's last meeting, released Wednesday, showed a divide among members on when to raise interest rates. After last Friday's weak March jobs report, market expectations moved to a first rate hike from the Fed in September or later.
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"I don't think that the markets are rethinking the Fed, but the minutes highlighted how far away the rates market is from the Fed. That's helping the dollar. The market is fundamentally biased to sell the euro," said Vassili Serebriakov, currency strategist at BNP Paribas. He said the euro hit a technical level of 1.0713 and kept falling.
"That was the kind of a level that if held, the technical picture could still be signaling a rebound. But now it's more consistent with renewed (euro) downside," Serebriakov said. He said underlying flows are going against the euro and into the dollar, due to quantitative easing by the European Central Bank. "Because of QE, money managers are shifting out of the euro and that's why you see the euro unable to hold its high."
"Newswise, we're watching the U.S., and flowwise, we're watching Europe," he said.
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"The minutes didn't contain anything new but the minutes were debating whether to hike in June, and market pricing is not even sure they're going to hike this year at all … so there's a gap," Serebriakov said.
George Goncalves, head of rates strategy at Nomura, also said the Fed was not the driver of Treasurys. "We had an auction that didn't go over very well. This is not Fed-related at all. This is really a market that is trying to get its bearings at low levels of yields, ahead of a potential Fed hiking cycle," he said.
The $13 billion, 30-year auction followed on auctions earlier in the week for 3-year and 10-year notes. "It's a little supply indigestion…. We're still under 2 percent on the 10-year. It doesn't change anything. We're stuck in the range we've been in all along. You're going to have moments like this where volatility creeps up and it looks weird without it being tied to a Fed view," said Goncalves.
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Boris Schlossberg, BK Asset Management managing partner, foreign exchange strategy, said, however, there was a Fed element to the moves Thursday. Schlossberg said the minutes showed more hawkishness from Fed members who were more willing to move toward normalization sooner rather than later.
"I don't think there's any specific catalyst that is triggering the move. I think it's much more the general realization that over the last 48 hours with the Dudley speech yesterday and the FOMC released the minutes that there could be a much greater possibility that there could be a June rate hike," said Schlossberg. New York Fed President William Dudley left the door open for a June hike in his comments Wednesday.
Friday's data includes import prices at 8:30 a.m. ET and the federal budget at 2 p.m. Richmond Fed President Jeffrey Lacker speaks at 8:45 a.m. on the economic outlook.
Friday could be a big day for Apple, as it allows pre-orders for its new Apple Watch on line only after midnight Pacific time. Customers can visit Apple stores to check out the device.