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By Jameel Ahmad, Chief Market Analyst, FXTM
The euro encountered aggressive swings across the currency markets as investors reacted positively both to optimism that a Greece deal is finally about to be reached, and the substantially improved inflation figures coming out of the Eurozone. The euro jumped to a two-week high against the USD at 1.1193 and now that the pair has finally managed to close above 1.10, the outlook for the eurodollar is looking more positive. As soon as more contrasting reports were released whether a Greece agreement was in reach, the eurodollar suddenly had dropped by around 70 pips. Greece remains a constant risk to investor sentiment and it is likely that volatility in the euro will continue until the never-ending negotiations come to a close.
All Greece comments aside, the inflation figures ticking higher have greatly improved market sentiment towards the EU economy. We will be hearing more about how the ECB’s QE programme is starting to have the desired impact on the EU economy, although the dramatic decline from 1.39 to as low as 1.04 against the dollar over the past year is inflationary in itself. Due to EU inflation levels rising, speculation is also likely to increase over the possibility of the ECB’s QE stimulus being scaled down sooner than expected. However, this would not be beneficial at all, and could risk the euro rising to such an extent that inflation potential weakens. There was a reason why the ECB’s Coeure stated that the stimulus programme would be accelerated over the summer months, with this more likely than not being an attempt to make investors hesitant towards purchasing the euro.
For the fifth successive day, Gold appeared at risk of declining below $1180 but it appears that the psychological support level of 2014 is coming into play again. After slipping towards $1180, gold quickly bounced within a couple of hours to rally as high as $1196. A short-term trading range does appear to be in the works, and perhaps the bears are going to have to wait for gold to fall below $1180 before truly targeting the metal. In the meantime, gold volatility is likely to continue until the US NFP is released at the end of the week. If the employment report fails to excite the USD bulls or provides reason for US interest rate expectations to be pushed back, don’t be surprised if the metal tries to rally towards $1210. With the timing of the first US interest rate rise still largely unclear, there is still potential for gold to benefit from any anxiety that the Federal Reserve will delay hiking rates.
Prior to the upcoming OPEC meeting, WTI Oil advanced for the fourth day in a row with the commodity jumping from $56.50 to $61.17 in as many days. There is rising suspicion that OPEC will leave production levels unchanged later this week, which raises questions over how much further the price of WTI can rally. Although there are concerns over how economies will be able to cope with the dramatic decline in the price of WTI over the previous year, recent reports show that investment in oil production is still rising suggests that the lower oil prices are set to stay. With investment in oil production increasing throughout the Middle East, oversupply concerns are going to remain a dominant threat to investor sentiment.
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