As was the case last week, the currencies markets set off with a quiet economic calendar Monday. However, growing event risk in heavy-hitting reports starting tomorrow has put the dollar on its way, which happened to be away from major anti-dollar resistance levels.
For the euro, the 1.2900 proved too difficult to hold as the EURUSD dropped 90 points off of a 1.2880 early session touch. The greenback bid fended off another test of the 1.9180 level against the British pound, instead producing a 160-point drop to 1.8995. In the USDJPY, a steady 100 point advance brought spot up to 118.25 before resistance started to kick in. Finally, the USDCHF made a respectable 90 point rebound off its lows to rise above the 100-day SMA to 1.2455.
From the fundamental front, there were few indicators on deck for dollar traders to concern themselves with. The single scheduled release this morning was the monthly fiscal budget statement for October due at 19:00 GMT. There is little change expected for the month, and even less of a reaction from the dollar. While the national deficit is a concern for those tracking government spendings contribution to GDP and pricing treasury auctions, the broader currency audience will start paying more attention in November and beyond. With the Democrats winning both houses of Congress in last weeks mid-term elections, many analysts expect spending and tax policy will quickly come under review. Taking a more active role in guiding the dollar today though was the steady decline in energy prices. Crude oil prices dropped 1.8 percent this morning to $58.52, the lowest level in a week. Following the short-lived rebound last week, the volatile energy product has gradually moved back below the $60 per barrel mark as inventories have grown while demand invariably contracts. Demand has recently dropped markedly as temperatures across the United States have held off the chill. Recently, it was estimated that heating oil demand in the Northeast, accounting for greater than three-fourths of the nationwide total, would be off by more than 20 percent through the end of this week. Another reason behind the recent drop in energy prices is contract rollover. As big pools and other traders move out of expiring contracts, the selling pressure usually artificially depresses prices.
Looking beyond the boarders of todays session, the real price action will likely begin tomorrow. With measures of both inflation and consumer spending on deck, it could be a quick start to the data-intense week. The producer price index will offer a leading indicator for pressures further down stream, but will be most useful in guiding last-minute updates for the consumer-related report due out on Thursday. Retail sales on the other hand will make its own way as the market will determine whether stronger consumer spending will evolve from the jump in sentiment gauges and drop in gasoline prices over the same period. Further out, particular interest will be paid to Wednesdays FOMC minutes from the October 24th meeting. Traders will look for updated comments from the policy board pertaining to the easing in commodity related inflation pressure, and whether the core numbers alone will justify current levels of lending rates. Trade will also come into the cross hairs as the TICS data will be reviewed for its consistency with the better than expected improvement in the physical report announced earlier.
With energy prices on the decline, and no broad economic indicators to cloud the stock traders, equities indices were moving higher by mid-session. The Nasdaq Composite was leading the pack with a 0.5 percent advance to 2,402.19 by 17:05 GMT. Following closely behind, the S&P 500 was up 0.34 percent to 1,385.58 while the Dow advanced 0.32 percent to 12,146.85. From the ranks of market movers during the early morning hours of trade, a few stood out. Drug giant Merck & Co.s shares were up 0.9 percent on a $0.37 rise to $43.99 after the FDA announced it would delay a competitors diabetes drug before allowing it on the market. In merger news, Illumina Inc. announced its intentions to buy genetic analysis systems producer Solexa Inc. for a $600 million all-share deal. Shares of Illumina dropped 11.5 percent or $5.05 to $39.00 in the wake of the statement.
In treasuries, a modest dip in prices preceded tomorrows release of October factory inflation. Ten-year notes were off 7/32nds to 100-02 with yields up 3 basis points to 4.615 by 17:05 GMT. Thirty-year bonds were similarly off 8/32nds to 96-20 as its own yield rose 2 basis points to 4.713.
