BY Lukman Otunuga
The main story in trading overnight is still on the Eurodollar dipping to fresh seven-month lows at 1.0565. There is a continual growing divergence in both monetary policy and economic sentiment between the United States and Europe that has invited regular opportunities for sellers to attack the currency pair.
The escalating expectations that the ECB might ease monetary policy further in December, complimented with the increasing likelihood around the Fed raising US interest rates, has prevented any possibility of a recovery in the EURUSD after a month of heavy selling. This has left the EURUSD heavily depressed with little signs shown of a bounce back.
The ongoing expectations around the US interest rate rise in December have enabled the USD Index to finally breach the psychological resistance at 100. Sentiment towards the USD is bullish with data throughout November providing support to the expectations of a US interest rates rise before the end of 2015, and with other central banks still threatening further easing this could provide the potential for the USD index to trade even higher. While the 100 level was previously seen as stubborn resistance, a further push above will see it likely transition to dynamic support before investors begin monitoring whether it can climb towards the March 2003 highs at 102.
Gold trading is being completely dominated by US interest rate expectations and with Fed futures showing nearly an 80% likelihood of a US rate increase in December, there is still a potential for Gold to fall further.
WTI oil was able to rebound over $1 from $41.85 following a smaller than expected build in US inventories over the previous week. This follows unexpected comments from Saudi Arabia earlier in the week that it was willing to cooperate with other oil producers to achieve a stable price for the commodity. Despite this, there is still an aggressive oversupply in the markets that will take time to tackle. Even if US stockpiles are starting to cool down and Saudi Arabia hints at a willingness to cooperate with other producers, production of oil is still at huge levels in Saudi and Russia, with Iran also expected to unleash its own supply next year. The oversupply is going to continue to enforce pressures in investor sentiment, and the commodity remains fundamentally bearish.
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