Forexpros Weekly Wrap-Up 02 November 2012

Closing the Week with Forexpros

by Forexpros Staff

The dollar rose against most major global currencies on Friday after the U.S. October jobs report beat expectations, sparking demand for U.S. assets.

Investors opted for the greenback over stocks and other risk-on assets due to the proximity of U.S. presidential elections on Tuesday.

In U.S. trading on Friday, EUR/USD was down 0.87% at 1.2830.

The U.S. Bureau of Labor Statistics revealed earlier on Friday that the U.S. economy added 171,000 jobs in October, beating out analysts’ calls for a gain of around 125,000, which sparked demand for U.S. assets.

The headline unemployment rate rose to 7.9% from 7.8% in September.

Investors snapped up greenback positions on the news, though they stopped short of engaging in a full risk-on session.

The economy didn’t add enough jobs to reflect a more robust U.S. recovery.

Some analysts have said the economy should create at least 250,000 a month on an ongoing basis before recovery really gains steam.

U.S. voters go to the ballot box on Tuesday to elect a new president, and polls do not indicate that either President Barack Obama or his Republican challenger, Mitt Romney, have emerged as a clear frontrunner up to now.

Investors went long on the dollar on the last Friday before Election Day to ride out electoral uncertainty.

Results could have major long-range impacts on the dollar.

Mitt Romney has suggested he opposes the Federal Reserve’s loose policies, including quantitative easing, under which the Fed buys bonds held by banks, pumping the economy full of liquidity to depress borrowing costs to spur recovery.

Fed Chairman Ben Bernanke’s term ends in January of 2014, and a Romney victory could up the chances that today’s head of the U.S. central bank could be replaced by a more hawkish figure.

In the more immediate future, a fast-approaching fiscal adjustment is due to strike the U.S. economy.

At the end of this year, the Bush-era tax cuts and other tax benefits expire at the same time pre-programmed cuts to government spending take effect, a combination known as a fiscal cliff that could send the country into recession if left unaddressed by Congress.

With elections behind them, a new Congress and the White House may be more willing to address politically unpopular tax and spending issues, though investors began to stock up on greenbacks in anticipation of political indecisiveness and market volatility.

The dollar also saw support on weak Spanish factory data.

The Markit research group reported that Spain’s manufacturing purchasing managers’ index fell more than expected in October, dropping to 43.5 from a reading 0f 44.6 the previous month.

The Markit research group reported that Spain’s manufacturing purchasing managers’ index fell more than expected in October, dropping to 43.5 from a reading 0f 44.6 the previous month.

Analysts were expecting a reading of 44.0.

Meanwhile, Italy’s purchasing managers’ index fell to 45.50 in October from 45.70 in September, disappointing expectations for a reading of 45.90.

The greenback, meanwhile, was up against the pound, with GBP/USD trading down 0.76% at 1.6009.

The dollar was up against the yen, with USD/JPY trading up 0.34% at 80.40 and up against the Swiss franc, with USD/CHF trading up 0.98% at 0.9410.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD trading down 0.05% at 0.9959, AUD/USD down 0.62% at 1.0335 and NZD/USD trading down 0.34% at 0.8241.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.68% at 80.67.

Gold

Gold prices dropped on Friday as investors stocked up on the yellow metal’s traditional hedge, the dollar, to await the results of U.S. presidential elections on Tuesday

Investors brushed off the surprisingly strong October jobs report.

On the Comex division of the New York Mercantile Exchange, gold futures for December delivery were down 2.22% at USD1,677.45 a troy ounce, up from a session low of USD1,674.75 and down from a high of USD1,716.95 a troy ounce.

Gold futures were likely to test support at USD1,674.75 a troy ounce, the earlier low, and resistance at USD1,716.95, the earlier high.

Elsewhere on the Comex, silver for December delivery was down 4.06% and trading at USD30.940 a troy ounce, while copper for December delivery was down 2.10% and trading at USD3.478 a pound.

Oil

Crude oil futures plummeted in U.S. trading on Friday as the northeast U.S. continued to recover in wake of Superstorm Sandy, wiping out concerns that supply closures at refineries would be long lasting.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in December traded at USD85.14 a barrel on Friday, down 2.24%, off from a session high of USD87.05 and up from an earlier session low of USD85.04.

Seven refineries carrying a combined capacity of 1.29 million barrels a day had shut or reduced operations because of Sandy in recent days.

Their eventual return to operations, however, will add crude to a market that is awash in supply, which pushed prices down on Friday.

Elsewhere, U.S. government temporarily waived the Jones Act, a move that will allow foreign tankers to haul fuels from Gulf Coast refineries the storm-stricken northeastern U.S.

The Jones Act requires ships moving goods from port to port within the U.S. to be domestically built and crewed.

On the ICE Futures Exchange, Brent oil futures for December delivery were down 2.38% and trading at USD105.59 a barrel, up USD20.45 from its U.S. counterpart.

Natural Gas

Natural gas continued plunging Friday, after Thursday’s report from the U.S. Energy Information Administration indicating U.S. gas supplies climbed broadly in line with market expectations last week.

On the New York Mercantile Exchange, natural gas futures for delivery in December traded at USD3.632 per million British thermal units during U.S. morning trade, plunging 1.80% on the session.

The U.S. EIA said in its weekly report that natural gas storage in the U.S. in the week ended October 26 rose by 65 billion cubic feet, broadly in line with market expectations for an increase of 67 billion cubic feet.

Inventories rose by 82 billion cubic feet in the same week a year earlier, while the five-year average change for the week is an increase of 57 billion cubic feet, according to U.S. Energy Department data.

Total U.S. natural gas storage stood at 3.908 trillion cubic feet as of last week. Stocks were 136 billion cubic feet higher than last year at this time and 259 billion cubic feet above the five-year average of 3.649 trillion cubic feet for this time of year.

U.S. natural gas stocks peaked at a record 3.852 trillion cubic feet in November of last year.

The report showed that in the East Region, stocks were 49 billion cubic feet above the five-year average, following a net injection of 34 billion cubic feet.

Stocks in the Producing Region were 159 billion cubic feet above the five-year average of 1.118 billion cubic feet, after a net injection of 23 billion cubic feet.

Natural gas futures often reach a seasonal low in October, when mild weather reduces demand, before recovering in the winter, when heating-fuel use peaks.

The heating season from November through March is the peak demand period for U.S. gas consumption.

Meanwhile, market players continued to assess the impact from Sandy, which paralyzed much of the U.S. East Coast region, a major gas-consuming area.

Several nuclear reactors in the region started to resume operations, easing concerns over a slowdown in demand.

Nuclear outages totaled nearly 30,600 megawatts early Thursday, down from 30,700 megawatts out on Wednesday. The five-year average for this time of year is an outage rate of about 22,800 megawatts.

Stocks

U.S. stocks dropped despite stronger-than-expected October jobs numbers, as investors fled to the safety of the dollar to await Tuesday’s presidential elections.

At the close of U.S. trading, the Dow Jones Industrial Average fell 1.05%, the S&P 500 index was down 0.94%, while the Nasdaq Composite index was down 1.26%.

Some investors sold stocks and chased dollar positions on Friday on sentiment that October’s jobs report may be strong enough to convince the Fed to consider exiting its interventionist policies in the coming months.

In the more immediate future, a fast-approaching fiscal adjustment is due to strike the U.S. economy, which continued to quell appetite for risk.

At the end of this year, the Bush-era tax cuts and other tax benefits expire at the same time pre-programmed cuts to government spending take effect, a combination known as a fiscal cliff that could send the country into recession if left unaddressed by Congress.

With elections behind them, a new Congress and the White House may be more willing to address politically unpopular tax and spending issues, though investors began to stock up on greenbacks in anticipation of political indecisiveness and market volatility in the coming weeks.

Leading Dow Jones Industrial Average performers included Bank of America, up 1.23%, Merck, up 0.17%, and Walt Disney Co., up 0.16%.

The Dow Jones Industrial Average’s worst performers included Chevron, down 2.89%, Caterpillar, down 2.11%, and IBM, down 1.86%.

European indices, meanwhile, finished higher.

After the close of European trade, the EURO STOXX 50 rose 0.52%, France’s CAC 40 rose 0.49%, while Germany’s DAX 30 finished up 0.38%. Meanwhile, in the U.K. the FTSE 100 rose 0.11%.