Dollar Index Edges Higher, Crude Sellers Attack

The rising optimism over the Federal Reserve breaking the tradition of central bank caution by raising US interest rates in 2016 has inspired the dollar bulls, with the US Dollar Index edging higher towards 96.00.

Although expectations continue to fluctuate over the possibility of a US rate rise in September, the 54% probability that the central bank could act in December continues to make the dollar attractive. Sentiment remains bullish towards the US economy, with the string of positive domestic economic data releases providing a compelling reason for the Fed to raise US rates before year end.

With the period of uncertainty dispelled from last week’s hawkish comments from Yellen, the dollar could be set for further gains as bets intensify over the Fed hiking rates.

The main focus this week will be the monthly US Non-Farm payroll figures for August, which, if exceeds expectations, could encourage more Fed members to join the hawkish camp.

Dollar bulls were rampant last week and the momentum has trickled into the new week, with the Dollar Index trading towards 96.00. From a technical standpoint, although prices are still in the boundaries of being bearish on the daily timeframe, a decisive breakout 96.00 could open a path towards 96.50.

Commodity spotlight – WTI oil

WTI crude was left vulnerable to losses on Monday as the combination of dollar resurgence from renewed rate hike hopes and concerns over the excessive oversupply of oil in the global markets encouraged sellers to attack.

The heightened expectations over OPEC securing a freeze deal in September’s informal meeting have been quelled by comments from Saudi Arabia and Iraq who continue to unleash record output into the markets.

With the dollar potentially strengthening further as rate hike speculations intensify, future speculative boosts in oil prices triggered by OPEC could be capped. August’s sharp rally which defied the fundamentals has already displayed signs of exhaustion, with the awful combination of oversupply fears and anxiety over demand waning ensures WTI remains depressed.

All eyes will be on September’s informal meeting, and if it concludes without a solid deal then oil could be open to steep losses. From a technical standpoint, a strong breakdown below $46 could open a path towards $44.

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