Greece, FOMC, Gold and Indices

Any optimism that an agreement could be reached to end the ongoing Greece situation has basically been erased following the exchange of some feisty words at the conclusion of Friday’s Eurogroup meeting. Downbeat comments from several European Finance Ministers suggests that no progress has been made, and the prospect of a Greece exit is appearing more likely again. Although it does appear that the left-wing Greek government and Eurozone leaders are trying to work together to solve their differences, talks are failing because there is such a contrast in demands from both sides.

Failed talks have become a recurring theme because the current Greek government is remaining clear in its mandate to reject austerity. At the same time, it has become obvious that the Greek government will not be successful in achieving the removal of austerity and the clock is firmly ticking on the next loan payment to its creditors. Greece’s government has their back against the wall and there really is no alternative but for it to either submit the required reforms needed to receive help in its payments, or face the music that Grexit is very much possible. At the moment, investor sentiment is being weighed down by latter option with this also explaining why both the Euro and European Indices are pointing to the downside to begin the week.

A combination of an increased frequency of disappointing economic data from the United States and the possibility of Greece’s woes weighing on global sentiment make it highly probable that the Federal Reserve will be forced to reaffirm a dovish tone in the upcoming FOMC meeting, rather than the hawkish tone that the markets will be looking for. Last Friday’s Durable Goods came in much weaker than expected and although this will not inspire a reversal on interest rate expectations, such economic data is certainly easing the pressure on the Federal Reserve to begin raising interest rates.

Any further USD weakness would provide support for emerging market currencies, while I am also keeping an eye on whether the EURUSD will appreciate any higher. While the ongoing situation in Greece can weigh on the Euro sentiment, it is the USD weakness that is providing support to the EURUSD bulls in the current market. With the risk of a dovish Federal Reserve tone being present, I believe this week could be a volatile one for Gold. The precious metal could really benefit from a dovish stance from the Federal Reserve, especially if eased back interest rate expectations encourage USD weakness. I do think that the Federal Reserve will be concerned by the recent downturn in US economic data and with global economic threats remaining present, this FOMC meeting could be an unexpectedly dovish one.

After avoiding the spotlight for some time, the Nikkei has pushed the 20050 level that had not been previously seen since 2000. The JPY has suffered losses following a downgrade from Fitch to begin the week, and I am looking towards whether the JPY will extend its losses with the Bank of Japan (BoJ) minutes, retails sales and inflation data all scheduled to be released this week. There are expectations for the BoJ to extend its language to a more dovish tone and if the BoJ talks down the JPY, this will likely provide a further boost to the Nikkei.

WTI Oil has struggled to continue building on its recent momentum, with it being possible that concerns over global economic health have encouraged a sell-off due to the possibility of weaker global demand. Resistance around $58 is providing a ceiling on oil movements, and it’s likely that we will see the market put pressure back towards the $55 area as support, with fundamental data still pointing towards an accumulation of oversupply with US oil inventories still sitting on record levels.