Lower Oil Helps Dollar - FOREX UPDATE - USD

Lower oil prices help dollar: The USD was stronger across the board overnight, although there was little by way of pattern in the distribution of currency moves. EURSD traded down to a low of 1.2699 from 1.2734, while USDJPY traded up to a high of 117.56 from 117.21.

The USD may have been helped by a sharp decline in oil prices, which fell by around 4% yesterday, with the Nymex crude benchmark futures closing at US$58.38, down from US$60.75 on Friday.

The declines appear to be driven by the view that OPEC producers will be unable to make the production cuts necessary to stabilise oil prices.

The core PCE prices rose 0.2% m/m in September, in line with expectations and the y/y pace slowed to 2.4% from 2.5% in August. While USD risks are very much to the downside over a 3-month time horizon in our view, we suspect the USD will find its feet in the near-term, and could mount a recovery back to the higher end of its ranges. The very healthy environment for carry trades, which was a key element in USD's ability to hold up well in September despite a big loss of rate support, remains pretty much intact, with our FX Risk Index continuing to hover in very risk-seeking territory.

Moreover, while we agree with consensus expectations that this week's key slate of rather more forward looking data, including the ISM report and the employment report, will be consistent with a slowing pace of activity, the market would be sensitive to upside surprises which might signal that Q4 was starting out stronger than a sluggish Q3.

Looking ahead, and the employment cost index for Q3 is due at 1330 GMT and the Chicago PMI and the Conference Board's consumer confidence index are both due at 1500 GMT.