Dollar weakens against most pairs after Thanksgiving break

Fundamental View

Over the weekend we saw oil continue to weaken in the wake of the “No Cut” announcement from the OPEC meeting on Thursday afternoon. Such comments were followed by insinuations that there could indeed be oversupply for an extended period of time. This was seen as OPEC members attempting to kerb the effects of the US Shale boom, attempting to price out their competitors and forcing them to a point where it is extremely difficult to profit from the expensive Shale exploration process. The price of crude dropped 6% during Friday’s session in wake of the commentary from the OPEC press conference, dropping a further $2 during Monday’s Asian session. This week is generally news flow heavy as we have Draghi and the ECB rate decision on Thursday and Non-farm Payrolls on Friday. We also have Initial Jobless Claims on Thursday which has become a little more delicate of late with a number posting above the 300k mark last week. If we see a second number post above this level it could signal an extended period of short-term shrinking in job creation. We also saw Moody’s cut Japan’s rating in a move which highlighted several areas of concern for Japan. Moody’s reported uncertainty over Abe’s fiscal deficit reduction goals, the timing and effectiveness of growth-policy methods. They also reported the potential for a rise in Japanese yields and a fall in debt affordability. The cut sent the Yen to a 7 year low against the majority of pairs, multiplying the down-move in the yen further.

Today’s View

This morning we returned to the desk after the Thanksgiving break to see the dollar weaken against most pairs. Although we saw the yen weaken on the back of the Moody’s cut initially, the move has largely been reversed due to the correlation between dollar-denominated currency pairs. Today’s calendar is relatively heavy with manufacturing data. We had the main European countries reporting their numbers today, with Spain and France beating headline expectations but Italy and Germany missing on their predictions. The Eurozone as a whole missed on its manufacturing PMI number estimate and has seen both the DAX and ESTOXX make new lows for the session. Although the numbers missed the Euro has not weakened dramatically against the dollar due to the dollar being already on the back foot. Cable has also been on the front foot as the dollar has weakened; sterling has remained buoyant due to a UK Manufacturing PMI beat. This afternoon we have US Manufacturing PMI and ISM Manufacturing data as the main headline; given the dollar weakness we have seen this morning any news in the dollars favour could be seen as a lynchpin release so is likely to spur exaggerated dollar strength.

Alternative View

Data is light for the afternoon however we have some data developments which are likely to either drive the dollar reversal or stagnate the dollar space as the moves today have been so large. We also have ECB’s Costa speaking in Lisbon at 3pm. Any comments in favour of extended Dovish policy measures could extend a dollar strength prox