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James Hyerczyk

The price action in the Forex and commodities markets today suggests that technical factors may be having more of an influence on the price action rather than the fundamentals. There seems to be one fundamental event that all investors are waiting for and that is whether the Fed will raise rates in December.

Yesterday’s U.S. Consumer Inflation report was just strong enough to support the rate hike, but investors seem to have already priced this into the market. This is the main reason why the U.S. Dollar failed to break out to the upside. The weaker dollar today is also helping to underpin the Euro and British Pound and to some degree gold and crude oil.

Today was a light day for news out of the Euro Zone and the U.K. In the U.S., building permits came out as expected at 1.15M. Housing starts were below the 1.16M estimate at 1.06M.

The housing data had little effect on the markets because the main focus today is the Federal Open Market Committee Meeting Minutes due to be released at 2:00 p.m. ET. This “report” is important because it is likely to provide more detail for traders as to the timing of the Fed rate hike. It will also highlight the divergences between the hawkish Fed monetary policy and the dovish European Central Bank and Bank of England monetary policies.

Although the EUR/USD could be setting up technically for a short-term bottom, the longer-term view is still bearish because of the possibility of the Fed rate hike and additional stimulus from the European Central Bank. The ECB may lower interest rates further, expand its current 1.1 trillion Euro stimulus package, or extend its quantitative easing program beyond September 2016.

Oversold conditions are also helping to underpin the GBP/USD. However, gains are likely to be limited because of the Fed and the fact that the U.K. economy is too weak to handle a rate hike. This notion was supported on Tuesday with the release of the negative consumer inflation data.

December Gold futures are going to take their cues from the U.S. Dollar. Oversold technical conditions may be supportive over the short-run, however, the market is likely to remain bearish over the long run. This is because there will be greater demand for U.S. assets because of the higher rates. Gold does not pay a dividend or interest so it will remain an unattractive investment. In addition, demand from foreign investors is also likely to disappear.

January Crude Oil looks like it is consolidating on the charts. Some of the support is coming from the military action in Syria and the possibility that supply from the region may be affected. Oversupply is the main reason why the buying is tentative. Today’s U.S. Energy Information Administration’s weekly inventories report is expected to show that oil stocks increased 2.0M barrels. 

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