The Greenback stood firm during trading on Wednesday with prices stabilizing around 14 year highs against a basket of currencies at 101.10 as speculation of a December rate hike reached mind boggling levels. Fed funds have priced in a surreal 100% probability of the Federal Reserve taking action before year end and this could ensure Dollar strength remains a key theme moving forward. Investors may direct their attention towards the myriad of economic data from the US this afternoon which may provide some clarity on the health of the world’s largest economy. If core durable goods orders and unemployment claims figures display signs of economic stability, then expectations of a US rate hike could be reinforced even further. The main course on Wednesday remains the FOMC meeting minutes which is widely expected to generate a hawkish touch. With US interest rate increase almost a done deal next month, most may be paying attention to clues on interest rate timings for 2017.
Oil remains volatile
Oil has been explosively volatile this week with prices violently swinging between losses and gains as expectations fluctuate over OPEC securing a freeze deal at next week’s formal meeting in Vienna. Fears still linger over the success of the pending freeze deal despite the repeatedly positive comments from major oil producers displaying their willingness to fight the oversupply woes. It has become quite clear that the extended periods of oversupply fears have damaged buying sentiment towards oil, capping upside gains. Attention may be directed towards Wednesday’s EIA Inventory report which may expose oil prices to further downside risks if inventories rise.
Commodity spotlight – Gold
Gold traded in a lacklustre fashion this trading week with prices hovering above $1210 as traders waited for the next major release. Gold remains extremely sensitive to rising US rates, which lifts the opportunity cost of holding non-yielding assets, while a strengthening Dollar exposes the metal to downside risks. The Trump fuelled risk-on sentiment continues to pressure Gold with the bearish combination of rising US rate hike expectations and Dollar dominance potentially enticing sellers to attack. From a technical standpoint, a breakdown below the $1210 support could encourage a steeper decline lower towards $1200.
Currency spotlight – EURUSD
The mounting concerns over slowing Eurozone growth, negative rates and political instability in Europe has left the Euro vulnerable to heavy losses. Sentiment remains firmly bearish towards the Euro with steeper declines expected as bets intensify over the European Central Bank extending its QE program at December’s policy meeting. The explosive combination of Euro weakness and Dollar strength amid the growing rate hike expectations has sparked discussions of the EURUSD hitting parity in the future. From a technical standpoint, the pair is heavily bearish on the daily timeframe and a breakdown below 1.06 could trigger a steeper decline lower towards 1.05. In the longer term, if bears are able to maintain dominance below 1.05 then 1.00 could become a reality in the medium to longer term.