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Wednesday’s dovish Fed minutes continued to drive the U.S. Dollar lower today as investors flocked into the Euro, British Pound and higher risk commodities. Across the board, many higher yielding currencies and commodities are posting multi-month highs as the dollar approaches its lowest level since late June.
The EUR/USD began its latest surge to the upside earlier in the week on technical factors when it drove through the top of a bullish chart pattern formation. It gained additional strength on Wednesday after minutes of the Fed monetary policy committee revealed that the central bank was considering easing monetary policy over the near-term. The minutes said “many members judged that additional monetary accommodation would likely be implemented fairly soon.”
While this news dissolved technical levels on the charts, there remained some skeptical traders who believed that Europe’s sovereign debt issues would eventually put a lid on the Euro’s gains. This makes the currency vulnerable to a potentially volatile and abrupt ending to this current rally.
The GBP/USD is also posting strong gains today, helped by the Federal Reserve’s friendly minutes. This morning theSterlingreached its highest level versus the dollar since May 17. Upside momentum could slow later in the trading session as the currency repair tests a key technical level at 1.5906, but the uptrend is expected to remain intact unless it closes lower today.
The British Pound could continue to post strong gains if the timing of the Fed’s next round of quantitative easing becomes clearer. At this time, many traders doubt that Bernanke will make a major announcement at the annual Jackson Holecentral bankers’ meeting next week, but some traders have moved up their action date from December to September or October.
Like the Euro Zone, the U.K. economy also faces problems because of slow growth and the possibility of a credit market downgrade. Since this current rally is more about the weakness in the U.S. Dollar rather than the strength in the British Pound, the GBP/USD also remains vulnerable to a quick reversal if future data confirms a strengthening U.S. economy.
December Gold continues to attract buyers because of the steep drop in the U.S. Dollar. Demand is coming from traders who treat gold as a reserve currency. Value investors or those who prefer to treat gold as an investment built a solid base over several months as they continually supported the market in a $100 range from late May to August. With the market currently testing the retracement zone of its annual range at $1668.15 to $1699.48, this market could also face short-term selling pressure if these traders decide to take profits on their long positions or if the dollar becomes oversold.
Finally, October crude oil is continuing its steady upside performance, driven by the weaker dollar and speculation of a military skirmish between Iran and Israel. Trend traders are banking on the weakerU.S.currency to drive up demand while those looking for military action are looking for a disruption in supply. The current upside target is $100 per barrel while new support has moved up to $96.06.