The U.S. Dollar is losing ground against most major currencies this morning as traders adjust positions following last week’s shift in sentiment out of higher yielding assets and this week’s slew of key economic reports and central bank meetings.
The most important economic report this week is the U.S. Non-Farm Payrolls and Unemployment Rate Report. This report will reveal the pulse of the economy. Last week’s GDP Report came out better than expected but investors want to see if the expanding economy produced jobs or at least slowed down the rate of job losses.
This week the Australian Central Bank meets on November 3. This is followed by the U.S. Federal Reserve on November 4. The Bank of England and the European Central Bank will round out the week with meetings on November 5.
The Reserve Bank of Australia is expected to announce another 25 basis point interest rate hike. Last week’s weak Australian inflation number took a 50 basis point hike off the table. This triggered a liquidation break in the Aussie Dollar. The U.S. Fed is expected to leave its benchmark interest rate at or near historically low levels. The language in its statement is expected to reflect changes in the economy and perhaps outline an exit strategy. The Bank of England is expected to leave interest rates unchanged. Speculators are split on whether the BoE will increase or expand its quantitative easing program. Finally, the European Central Bank is expected to leave its benchmark interest rate at 1% and talk about the need for central banks to continue to apply financial stimulus until the global economy is on solid ground. The ECB is worried about increasing unemployment and falling exports. At the last meeting it highlighted the possibility of a rough recovery in its statement.
This morning the December Euro is holding above a technical retracement level. Regaining 1.4771 will be a sign of strength. The current chart formation suggests a possible rally to 1.4872 to 1.4916. Key support is at 1.4689.
The December British Pound is trading weaker but remains rangebound between 1.6689 to 1.6245. This creates a 50% retracement price at 1.6467. The main trend will turn down on a trade under 1.6245.
Higher equity, gold and crude oil prices are helping to boost the December Canadian Dollar. This market is still in a down trend but this morning’s reversal is indicating oversold conditions. .9318 remains major resistance. If the buying continues to strengthen, then watch for a break out to the upside over this price.
The December Japanese Yen is trading higher but weakening after a strong surge overnight. The current chart formation suggests a break to 1.1009 to 1.0967 is possible over the short-run.
December Gold is trading higher this morning. The weaker Dollar is contributing to the strength. Low yields in stocks and bonds are making gold an attractive investment. Funds are continuing to flow into the gold market on breaks. Some investors are holding on to gold in anticipation of inflation. These traders are providing the support at this time.
Treasury futures are trading lower on position lightening ahead of this week’s key reports. Last week, yields fell sharply in December Treasury Notes and Treasury Bonds when investors dumped higher yielding, higher risk assets. Fixed income traders will be keying in on the Fed statement on Wednesday to see if the FOMC offers any hints as to when interest rates will be increased.
Look for a better opening in the U.S. equity markets. Bargain hunters are providing support along with profit-takers following last week’s sell-off. Many shorts most likely held positions over the week-end in anticipation of more weakness following last week’s liquidation. If the market doesn’t weaken early, then look for the start of a sizeable short-covering rally.
December Crude Oil could post a modest gain today if demand for commodities increases. A weaker Dollar and stronger stock market could provide additional support. The supply and demand picture remains bearish and could help to limit gains.
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