Dollar Gains as Oil Drops More Than $4, Slightly Better Fundamental Outlook

[DailyFx]

After being away from the markets on vacation for the past week, it’s interesting to come back this Monday with a fresh perspective. Indeed, there have been solid gains in the US dollar against the Euro, British pound, and Canadian dollar. Will these moves continue?



It appears that this could be the case. The first factor working in favor of the greenback is oil, as the downgrade of Hurricane Gustav to a Category 2 status sent crude oil futures down more than $4/bbl. It is worth noting, though, that trading may be subject to exceptionally volatile moves due to light volumes as the US observes the Labor Day holiday. Traders should also keep global fundamental factors in mind this week. While conditions in the US are by no means “good”, indicators released this week are likely to suggest that the economies of the Euro-zone and UK (among other regions) are in a significantly worse place relative to the US. Surely, with the US unemployment rate picking up at a rapid pace and the housing sector still in shambles, consumption is bound to wane further. However, short-term traders tend to keep the near-term picture in mind and over the next few days, ISM manufacturing and ISM services are both anticipated to hold steady while a bevy of foreign rate decisions (including the ECB, BOE, RBA, and BOC) are likely to yield pessimistic comments by the world’s central bankers and possibly even a rate cut. As a result, I will hold a bullish fundamental bias for the US dollar over the next few days against most of the majors (except the Japanese yen).

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