Flat U.S. Dollar Underpins Euro, British Pound and Commodities

Without any U.S. economic reports to react to until Wednesday, there was nothing to drive the U.S. Dollar in either direction with conviction, giving a slight boost to the EUR/USD, GBP/USD, crude oil and gold markets. Despite the rise in U.S. interest rates, the dollar has been unable to gain traction because of the renewed strength in the Euro Zone and U.K. economies. This suggests that a few investors are not buying what economists are saying about the Fed beginning its tapering of monetary stimulus as early as September.

As long as this uncertainty continues to exist, the dollar may remain in a sideways range with a slight bias to the downside.  With the market hovering above the June 19 bottom at 80.615, investors seem a little hesitant about driving the market lower from current levels. Today’s trade suggests investors would rather wait for Wednesday’s release of the July Fed minutes before committing in either direction.

The EUR/USD finished higher on Monday after Germany’s Bundesbank said the European Central Bank’s pledge to keep borrowing costs low doesn’t rule out higher interest rates to curb inflation. The remarks from Germany’s central bank is providing support for the Euro today against the dollar and because of the thin trading conditions, could attract additional buying into the close.

In another sign the U.K. is improving, interest rates rose, driving government bonds higher. This morning, the Confederation of British Industry raised its forecasts for the nation’s economic growth. This news combined with better services, manufacturing and construction activity helped drive the GBP/USD to its highest level since Mid-June.

Since the Forex pair is in the midst of a prolonged move higher in terms of price and time, and nearing a major top, it may be vulnerable to a short-term correction. Technically, the best chart pattern to watch for is a closing price reversal top. Some fundamental traders believe the rise in the British Pound against the dollar could be nearing its end especially if the Fed minutes and economic data confirm speculation the Fed is likely to begin curtailing monetary stimulus as early as September. Some analysts also believe the current U.K. economic improvements cannot be sustained.

October crude oil futures traded flat-to-better on Monday as the market hovered around $107.00, slightly below the main top at $107.85. Prices have been rallying for about a week, underpinned mainly by continued unrest in Egypt and other supply concerns.

Despite today’s quiet trade, the market is still in a position to move higher. A sustained move through $107.85 could trigger a fast rally to $110.00. Strengthening global economies could continue to spur demand. When combined with the political issues in Egypt, the oil market seems to have the right ingredients for a clean breakout to the upside.

 December gold rallied early in the session, but the market could not sustain a move through the Fibonacci price level at $1372.88. This price is now new resistance. The key support is the 50% level at $1336.54.

Greater global demand for metals in general is helping to support gold, however, the uncertainty over when the Fed will begin tapering and how much it will slash from its buying budget is the main driving force behind the latest rally.

Today’s failure to hold its gains could be a sign that investors are a bit concerned about holding a long position into Wednesday’s Fed minutes release. Speculators may have felt that booking profits ahead of the news may be the best decision to make given the recent bearish moves in the gold market.