US Dollar Gives Back Friday’s Gains

CURRENCY FUTURES

The U.S. dollar index declined as traders take a second look at the weak U.S. employment report that was released on Friday. Nonfarm payrolls in October increased 12,000 when a gain of 125,000 was expected. Nonfarm payrolls in the previous month were revised substantially lower to an increase of 78,000 when up 254,000 were previously reported.

Traders are evening up in advance of this week’s Federal Open Market Committee meeting.

Much of the strength in October in the U.S. dollar was linked to flight to quality buying due to geopolitical tensions in the Middle East and favorable interest rate differentials.

The fundamentals and technicals remain supportive to the U.S. dollar in the longer term.

Investor morale in the euro zone improved for a second consecutive month in November, although by slightly less than expected.

The Sentix index for the euro zone rose to -12.8 in November from -13.8 in October, which was slightly under the forecast of an improvement to -12.5 this month.

Euro zone manufacturing showed some signs of stabilization in October.

HCOB’s final euro zone manufacturing Purchasing Managers’ Index, increased to 46.0 in October, ahead of a 45.9 preliminary estimate but was still under the 50 mark, which separates growth from contraction.

It is widely expected that the Reserve Bank of Australia will hold its cash rate unchanged at 4.35% at its November 5 policy meeting.

STOCK INDEX FUTURES

Stock index futures are lower in advance of the elections on Tuesday and Thursday’s Federal Open Market Committee meeting announcement.

Investors are preparing for the Federal Reserve’s upcoming policy decision, with expectations of a modest 25 basis point interest rate cut this week.

The 9:00 central time September factory orders report is expected to show a 0.5% decline.

INTEREST RATE MARKET FUTURES

After underperforming the bullish U.S. employment report on Friday, futures are mixed to higher today.

The U.S. Treasury will auction three-year notes today.

Currently there is a 98% probability that the Federal Open Market Committee will lower its fed funds rate by 25 basis points at its November 7 policy meeting, and there is a 2% chance that the FOMC will reduce its key interest rate by 50 basis points.

Despite higher prices today for the December 30-year U.S. Treasury bond futures, it does not look like the lows have been make for the move.

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