USD: Thanksgiving focuses the minds – ING

Developments over the weekend hint at a path to ending the US government shutdown. It seems the prospect of massive flight delays around Thanksgiving and the delay in food aid payments has prompted a group of moderate Democrats to back a proposed compromise bill in the Senate. The compromise is far from meeting the full Democratic demands of a delay in the end of Obamacare healthcare subsidies, and Democrats in the House may still reject the compromise. But the next 48 hours in Congress should tell us whether this initiative has legs. US equity futures are marked close to 1% higher on the news, and Asian equity futures have had a good Monday, ING's FX analyst Chris Turner notes.

DXY may not be back above 99.90/100.00 for a while

"FX markets have responded by taking the risk-sensitive Australian Dollar (AUD) close to 0.5% higher. Remember, we said last week that a cross-rate like AUD/JPY had the highest correlation with the US Nasdaq index, which is marked some 1.2% higher today. USD/JPY is pushing over 154 again, and the prospect of a December Bank of Japan rate hike is being swamped by the use of the yen as a funding currency."

"While some might argue that the end of the shutdown could be a risk-on, USD-negative impulse for the FX markets, its impact may be more mixed. Late last week, the US Dollar (USD) was under pressure on job layoffs and rhetoric that the US economy could contract in the fourth quarter should the shutdown extend. At the same time, Friday's release of poor US consumer sentiment data was read as a dollar negative. Progress to end the shutdown may be felt more by risk-sensitive FX cross rates than the dollar."

"Away from politics, it is an exceptionally quiet week for US data, and tomorrow the US observes the Veterans' Day public holiday. Where there is data, the focus will be on tomorrow's release of the NFIB small business optimism index. Plus, there are quite a few Federal Reserve speakers. The probability of a December 25bp Fed cut has dropped to 64%. And without US data, that probability may drop close to 50% as Fed speakers generally point to the need to go slow in cutting rates. If last week's 100.36 high in DXY is to prove significant, it should not really be making it back above the 99.90/100.00 area now."