US Indices Target New Highs on Commodities Gains

US futures are pointing to a higher open again on Wall Street, a day after the S&P and Dow closed at new record highs as indices continue to receive a boost from a cooling dollar and gains in commodities.

The US dollar has torn higher in recent weeks, spurred on by the prospect of more fiscal stimulus and the inflationary pressures – and therefore additional rate hikes – that could accompany it. Having hit 13 and a half year highs and with markets now having almost entirely priced in a hike next month, we’re now seeing a little profit taking in the dollar which is helping to support commodities, which typically benefit when the greenback weakens.

USD/CAD – Canadian Dollar Improves to 14-Day High, Retail Sales Next

There are also other factors helping drive commodities higher at the moment, which in turn is triggering similar moves in equity markets. Ahead of the OPEC meeting next week, the noises coming from those close to the talks would at least lead us to believe that a deal is close to being agreed. The outline of the deal was previously agreed when members met in Algeria but the finer details still needed to be ironed out.

It’s these details that has generated a lot of scepticism around the deal over the last couple of months but it would appear that optimism from within the camp is high and traders are once again buying into it. I will be surprised if a deal is agreed next week that will play a significant role in rebalancing the market and more surprised again if any deal proceeds smoothly. For now though, the only important question is whether any deal will be enough to satisfy traders because we’ve been here before. Only a couple of months ago markets rallied in anticipation of a deal but it didn’t live up to expectations and oil fell almost 20% in the month that followed.

Crude Bulls Looking For $55 A Barrel

The rest of the day is looking a little quiet for economic events, albeit ahead of a potentially big day tomorrow. We’ll get existing home sales and Richmond manufacturing data from the US shortly after the open, as well as consumer confidence data from the eurozone, but I imagine focus will remain on the dollar and commodity markets as the main driver for now.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.