U.S. Dollar Weakens on Profit-taking Ahead of Friday’s Retail Sales Report

Volatility and volume were below average at the start of the week in the commodity and foreign currency markets. Most traders took a breather, following Friday’s huge sell-offs. To recap, U.S. Treasury yields rose on Friday, driving the U.S. Dollar sharply higher after the release of a stronger-than-expected Non-Farm Payrolls report.

The headline number showed the economy added 271,000 jobs in October. The unemployment rate ticked lower to 5 percent and average hourly earnings increased 0.4%, for an annualized increase of 2.5 percent. The news forced traders to shift the probability of a December Fed rate hike from 50% to 70%.

There were no major reports this week so traders were encouraged to book profits in all the markets that made volatile moves on Friday, including the December U.S. Dollar Index futures contract, the EUR/USD, GBP/USD and Gold. Short-covering also helped underpin crude oil.

This week’s calendar is a little thin in the U.S., Europe and the U.K. Several Fed members are scheduled to speak this week including Chair Janet Yellen. The focus, however, will be on the U.S. Retail Sales report on Friday. The Fed will be watching this report closely because it wants to see if the U.S. consumer is buying during this economic expansion.

British Pound traders face a September Labor Report on November 11, September Construction on November 13 and October BRC Same-Store Sales on November 10.

Eurogroup and ECOFIN meetings open the week on Monday and Tuesday. European Central Bank President Mario Draghi could move the Euro on Wednesday and Thursday if he decides to clarify the ECB’s plan to expand and extend the central bank’s 1.1 Trillion Euro stimulus plan.

Euro Zone Flash GCP on November 13 could be a market moving event. Traders are looking for an increase of 0.4%.

December Comex Gold futures are technically oversold and likely to take direction from the price action in the U.S. Dollar which is technically oversold.

The weaker dollar also helped boost December Crude Oil futures, which remain range bound. There are still concerns over the supply glut. However, the market may remain in a range until after the OPEC production meeting on December 4.