Dollar Softens Ahead of European Summit

NEW YORK ( TheStreet) - Markets are basically sideways, awaiting more details from European Union leaders. The EUR vs. USD is holding above 1.39 while most other currencies are little changed against the dollar. USD-JPY is just below the 76 level as the MoF steps up its intervention rhetoric.

AUD was the largest mover of the day, falling about 0.75% against the dollar after lower-than-expected core consumer price index numbers helped firm expectations for a cut by the Reserve Bank of Australia in next week's meeting.

In emerging markets, TRY was the best performer as the central bank gave another strong signal of its newfound hawkishness. Global equity markets are mixed but S&P futures are pointing to a 0.5% higher open after closing sharply lower Tuesday.

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In fixed income markets, yields are about five basis points lower in France and 30 basis points lower in Greece, while rising as much as 4 basis points in Germany and the U.S.

Oil is up again, rising for the fourth consecutive session with WTI future at $93.50 from a low of $75 earlier in the month. First 12-month tender in about two years saw European Central Bank lending 56.9 billion euros, lower than Bloomberg consensus for 70 billion euros.

An agreement in principle and some broad understandings are the most that should be expected from the summit. Further development is likely ahead of the G20 summit on November 3.

The general outline at this juncture is for European Financial Stability Facility to act as insurer for new Italian and Spanish issuance, around 100 billion euros in European bank recapitalization by the middle of next year, and a special purpose vehicle set up that will hopefully see outside investors. The IMF may offer precautionary lines of credit to Italy and Spain. Deeper "voluntary" haircuts toward 50% or more on Greek exposure will be sought. The ECB's independence will likely be preserved and will not be forced to be involved with the EFSF schemes.
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.