DailyFX.com -
Talking Points:
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As safe haven interest fades, Gold prices move against expectations of a US rate hike
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Crude Oil drops as an imminent Iran nuclear deal exacerbated a supply gut
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Copper recovers from the Greek episode but is still vulnerable to China’s 2Q GDP
The meetings of Eurozone leaders on Sunday and Monday ended with a final proposal drafted and bridge financing being prepared for Greece. Grexit risk seems to have diminished at least until this Wednesday’s deadline for a legislature of Greek reforms.
In Asia, China stocks rise for a fifth day today and hundreds of frozen stocks have resumed trading since yesterday. The Shanghai Composite index has gained 0.84 percent today and crossed the critical 4000 level, further averting the risk of a renewed sell-off.
While risks in Greece and China seem to have declined, market’s focus has shifted back to the timing and pacing of a US interest rate hike. A resolution to the Greek crisis would allow the Federal Open Market Committee to downplay concerns on global economic conditions and focus on positive economic momentum in the US. Expectations of a rate hike will lift the US dollar against other currencies which will render a reverse effect on commodity prices.
Gold dropped yesterday as well as today’s Asia morning session after news of a deal between Greece and its creditors thwarted safe haven demand and shifted focus to the pending US rate rise. Gold has fallen 2.3 percent this year since the Federal Reserve signalled a plan to boost interest rates, despite demand support during the Greek crisis. Gold does not produce interest or returns like other financial assets and therefore will likely lose its appeal in an environment of higher interest rates and asset returns.
WTI Oil has dropped 1 percent on a second day of declines as word came out that a nuclear deal with Iran is nearing completion. This deal would allow Iran to increase crude exports in a market that is already flushed with supply, and heighten downside price risk. Yesterday, Saudi Arabia reported a record June output rise that beat a previous record in the 1980s. Looking ahead, the bears may be watching out for a firm support level at 49.68 on the way down (the 61.8% Fibo of March-May rise).
Industrial metals rebounded after a Greek agreement averted demand risk in raw materials, although they declined again today in anticipation of a weak China’s quarterly GDP slated on Wednesday. Growth in the second quarter is expected to fall short of the 7 percent recorded in the first quarter. Copper prices have been volatile today and swung down 0.14 percent earlier this morning. Pressures on both ends effectively retain copper in a range with 20-day moving average at top.