Following last week’s relatively heavy losses, crude prices rallied yesterday and both oil contracts were sharply higher again today with Brent trading around $49.50 per barrel and WTI almost at $48.20 at the time of this writing. Sentiment on the oil market turned positive when Saudi Arabia’s energy minister announced yesterday that his country's oil exports will be reduced by a good 600 thousand barrels per day in August to 6.6 million bpd.
The Eurozone flash PMIs released this morning were mostly weaker than expected. Yet there was little reaction in the euro/U.S. dollar (EUR/USD) currency pair, which actually started to come off the lows having started the day on back foot following its sharp gains last week.
Ahead of the ECB meeting, euro traders are approaching things with a bit of caution today, apparently taking profit on their long positions with the EUR/USD and EUR/GBP both easing back a little. However, it has been a minor retracement so far and I would not be surprised at all if the single currency were to turn positive again in the afternoon.
Despite today’s sell-off, the price action on the British pound/U.S. dollar currency pair looks bullish thanks mainly to ongoing weakness in U.S. dollar. The cable took its sweet time but last week finally cleared a major hurdle when it closed above the 1.3000-1.3050 resistance area where it had struggled in the past.
The key theme in the forex markets at the moment is ongoing weakness in the U.S. dollar, which sold off further last week following Fed Chair Janet Yellen’s dovish testimony and disappointing economic data. The Federal Reserve Chairwoman indicated that rates may "not have to rise all that much further to get to a neutral policy stance.”
Gold has been undermined by rising government bond yields owing to major central banks generally turning more hawkish while the still-buoyant equity markets means there has been reduced demand for the perceived safe haven asset. Thus, for the time being, the impact of the weaker U.S. dollar is not having any meaningful impact on the buck-denominated precious metal.