New Record Highs for the Dollar

CURRENCY FUTURES

The U.S. dollar index has been supported by increasing U.S. Treasury yields. In addition, a flight to safety flow of funds in light of rising tensions in the Middle East is bolstering the greenback.

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

There are reports that European Central Bank policymakers our beginning to debate at what level do interest rates need to decline to in order to start stimulating the economy. Some analysts believe the ECB will cut rates sooner and by more than expected.

Traders have fully priced in a 25 basis point rate cut for December, and there is approximately a 23% chance of a 50 basis point reduction.

STOCK INDEX FUTURES

Stock index futures are lower due to rising geopolitical tensions in the Middle East, in conjunction with increasing U.S. Treasury yields.

In addition, some of the pressure may be linked to the belief that the Federal Reserve will not cut interest rates as quickly as previously anticipated.

Mortgage applications in the U.S. fell 6.7% from the previous week in the third week of October. This is the fourth consecutive contraction and extends the 17% decline from the earlier period.

The 9:00 central time September existing home sales report is expected to show 3.9 million.

The October Atlanta Federal Reserve business inflation expectations report will be released at 9:00. In September the figure was 2.1%.

The Federal Reserve will release its Beige Book at 1:00. This report is published eight times a year, which provides an overview of economic conditions in each of the Federal Reserve’s twelve districts. The report is released two weeks before the Federal Open Market Committee meeting, and is widely used as a source of information to predict the Fed’s monetary policy.

INTEREST RATE MARKET FUTURES

Futures are steady at the front end of the yield curve and are lower at the long end of the yield curve.

The 30-year U.S. Treasury bond futures declined to the lowest level since July 5.

Federal Reserve speakers today are Michelle Bowman at 8:00 and Thomas Barkin at 11:00.

The U.S. Treasury will auction 20-year bonds.

Currently there is a 91% probability that the FOMC will lower its fed funds rate by 25 basis points at its November 7 policy meeting, and there is a 9% chance that the FOMC will keep its key interest rate unchanged at 4.75% – 5.00%.

Futures at the front end of the yield curve will hold up better than futures at the long end of the yield curve.

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