The U.S. dollar's rebound took a bite out of stocks and commodities Monday, and traders look for more volatility this week.
Stocks had their worst day in a month, with the Dow ending down 187 at 8612 and the S&P 500 finishing 22 points lower at 923. The Chicago Board of Options Exchange VIX, a measure of market volatility, jumped 9.5 percent Monday, above 30, a level it hasn't seen in weeks.
From Fast Money
The dollar though was the story of the day and could continue to be a big driver of the market this week. Comments from Russia's finance minister Alexei Kudrin that the dollar's reserve currency status is safe for now drove it higher. Those comments combined with a weak euro zone banking report pressured the euro to a level of $1.3795 per euro, a decline of 1.5 percent.
Kudrin's comment came at the end of the G-8 finance ministers meeting in Italy, and after a week of speculation surrounding the green back's status as reserve currency. Kudrin's remarks also turned the tide on the dollar ahead of Tuesday's meeting in Russia of leaders of the BRICs - Brazil, Russia India and China.
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The stock market was also impacted Monday by disappointing economic news, as the Fed's regional Empire state survey showed manufacturing activity showed demand weakened in the month of June.
Tuesday's data includes PPI for May and housing starts, both at 8:30 a.m. The producer price index is expected to show an increase of 0.6 percent, and 0.1 percent minus food and energy. Industrial production is reported at 9:15 a.m, and is expected to come in at -1 percent.
Brian Dolan of Forex.com said the ZEW survey of analysts and investors for Germany and the EU will also be important Tuesday. He said the industrial production numbers in the U.S. would be "another important indicator for the whole green shoots notion."
Dolan expects the dollar should continue to see support. "Technically, we're looking at a pretty positive rebound scenario for the dollar. The Euro should be down to $1.32 to $1.33 in the next couple of weeks," he said.
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As stocks sold off, bonds rallied as disappointing data pushed buyers into the safer have play of government securities. The 10-year gained 18/32 to 95-5/32, lowering its yield to 3.713 percent. Commodities sold off, and oil finished at $70.62, a decline of nearly 2 percent.
Tim Smalls of Execution LLC had expected stocks to trend lower this week. He said the lack of volume in Monday's selling was significant. He said the S&P's next target lower would the be 200-day moving average at 911. The 50-day moving average is 891. "Those things are moving toward each other. That's an inflection point," he said.
What Else to Watch
CNBC's John Harwood interviews President Barack Obama Tuesday. The president also meets with South Korean President Lee Myung Bak on bilateral concerns, including North Korea's nuclear tests.
Best Buy reports earnings, and the Paris air show and the National Summit in Detroit continue Tuesday.
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