Dollar Mostly Firmer, but Going Nowhere Quickly

The US dollar is enjoying a firmer bias today, but it remains narrowly
mixed on the week.
  It is within well-worn ranges.   Of the
several themes that investors are focused
on, there have not significant fresh developments.  

In terms of monetary policy, both
Draghi and Yellen speak today.
  The former is behind closed doors with
a Germany parliamentary committee.  While Draghi’s prepared comments will
likely be made available, this is a defensive venue.  No new policy
insight can be expected.  Instead,
Draghi can be counted on to offer a robust explanation for the easy monetary
policy, which has had the support of the vast majority of the ECB.  

 He may also reiterate that countries, such as Germany, who have
fiscal space, ought to use it.
  He may also note that part of the
reason interest rates is low in Germany
is that the country, in defiance of the EC, has excess savings relative to investment (i.e. large and
sustained current account surplus).   Also, interest rates are low because
monetary policy is being asked to do more than it should.  Governments,
including Germany, have been slow to enact structural reform.  

For her part, Yellen is also unlikely to be breaking new ground in
testimony before the House Panel on Bank Supervision.
  This is not the forum in which monetary policy
is the focus.  At least four regional presidents will be speaking through
the day, though only two, Bullard and Evans speak during the market
sessions.  They are speaking on community banking.  Later, after the
markets close, two dissenters Mester and George speak.  

Earlier, Shafik, a Deputy Governor of
the Bank of England spoke.
  She suggested that even though the economy
has performed a bit better than expected, further easing may still be
needed.  This is not new news as the
MPC had already indicated that this was likely.  

Another development that investors have been tracking is the pressure on
Germany’s largest bank. 
Shares are Deutsche Bank recovered yesterday
and are building on those gains today.  News that it agreed to sell
its Abbey Life unit to a UK company was also
as supportive.   One of the challenges that the bank is facing
is that Chinese authorities may make it difficult for it to repatriate the full
amount of the $3.9 bln sales in a local lender.  Ironically, as the yuan
is about to formally join the leading currencies
in the IMF’s SDR
, Chinese restrictions on capital outflows may
pinch.  Reports suggest that the bank may be
asked to repatriate
the funds from
the sale in several batches (over time) rather than in one go, for

Investors have been monitoring developments within OPEC and today’s
meeting in Algiers.
  An agreement is not likely today.  However,
what many seem to be focusing on, however, is the prospects for an agreement
before the end of the year.   One of the key hurdles has been Iran’s
efforts to return its output to levels seen before the embargo.  Saudi
Arabia is reluctant to surrender market share to it.  Oil prices are
consolidating at the lower end of yesterday’s range.  During the first
half of this week, the price of the Nov light sweet futures contract seems comfortable
$44 and $46 a barrel. 

The US reports August durable goods orders today.  After a 4.4%
rise in July in headline orders and a
1.5% gain excluding defense and aircraft orders, a modest pullback is expected.  One bright spot could be the
shipment of those goods, which are expected to hold up better, and maybe even
eke out a small gain.     

Yesterday’s Conference Board’s measure of consumer confidence contained a
nugget that points to a good jobs report next week.
  It shows that the
gap between “jobs plentiful” and “jobs hard to get” is 6.3,
the most favorable reading since August 2007.   The early call is a 175k increase in September non-farm payrolls
after 151k in August.  Our bias is closer to 200k.   However, we
recognize that language of the FOMC statement suggests that the bar of
continued improvement in the labor market is low,
and the 175k more than meets it. 

The euro’s marginal extension of yesterday’s losses met to the tick the
61.8% retracement objective of the bounce since September 21 low just below $1.1125. 

That retracement level was $1.1183, and
the euro bounced off it.  The nearby cap
is seen in the $1.1240-$1.1250
area.  The greenback continues to trading in narrow ranges above
JPY100.  The five-day high is near JPY101.25, and only a move above there
(or below JPY100) is notable.  

Sterling poked back above $1.30 yesterday
but is struggling to find much traction.
  It is straddling that level
today.  It is showing little enthusiasm in either direction.  
Lastly, we note that the dollar-bloc currencies are under a little
pressure.  The Australian dollar remains the most resilient, but it is
vulnerable to a bout of profit-taking on the 2.5 cent run-up since mid-month as
the $0.7700 is approached.  Over the
past six weeks, it has flirted with this level, but only managed to close above
it once. 


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