Dollar Firms in Advance of EU Summit

NEW YORK (BBH FX Strategy) -- The dollar has pared back some of its recent losses as policy makers plan for a grand solution for the eurozone crises at this weekend's European Union summit.

The G20 finance ministers said they expect this weekend's EU summit to decisively address the current challenges through a comprehensive plan, which continues to support stocks and commodities with crude oil near $87 a barrel. Asian stocks rallied sharply with the MSCI Asia Pacific index up 2%, after benefiting from Friday's encouraging U.S. data and ongoing optimism over potential rescue plans from Europe.

European stocks remain bid, extending their longest rally since April with the EuroStoxx 600 advancing 0.4%. Shares are led by the nearly 2% rally in oil and gas with banks sharing tracking moves in the broader index. Against this backdrop, 10-year peripheral yields are mostly lower while bunds and gilts are mixed.

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Following this weekend's G20 summit where policy makers discussed potential solutions for 1) the extend of Greek haircuts, 2) details of a European bank recapitalization an 3) increasing the firepower of the European Financial Stability Facility suggests that the key event this week is likely to be the EU summit on Sunday. Markets are hoping for the "big bazooka" that is used to finally find a solution for both sovereign debt and banking crisis.

In the U.S., this week, there is not a huge amount of macro data, but we do get the first glimpse of October reports on Thursday and Friday. U.S. earnings season will also be in focus, and expected to impact market sentiment, given there are over 100 major S&P companies reporting this week. In the UK, there is expected to be some focus on UK data as well, with inflation and the latest MPC minutes expected to shed some light on the recent BoE QE decisions.

In the dollar bloc, Canadian inflation and policy signals from the RBA minutes are likely to be watched for a shift in rate expectations. Elsewhere, this week the Norges Bank is widely expected to remain on hold at Wednesday's meeting.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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