Dollar Ends Slide - Gold, Oil and 10-year Yield All Fall

Try as regular traders might today, they couldn’t overcome the resurgent dollar. And, in spite of bellicose words from the IMF, the EU and Greece, equities worldwide managed to pick up some gains. Gold gained nothing on the safe-haven play from the unsettled Greek debt problem today, however.

Another factor in the market today was the Commerce Department’s retail sales report, which showed that activity rising 1.2% for May after a flat April and a barely noticeable rise in March of 0.2%.

This spurred thoughts among analysts and investors of September as zero hour for a rate liftoff by the Fed, although we have a few soft months to go through yet.

Summer retail sales and hiring are traditionally lower than springtime. The Fed also takes a long view of data, crossing individual months’ figures with a three, or even six month moving number. June, July and August will most likely be the determining months in the Fed calculus.

Oil is a bit of a conundrum on the day. The International Energy Agency (IEA), which coordinates energy policy for industrial nations, raised its projection for global oil demand growth in 2015 by 280,000 barrels per day to 1.4 million barrels per day, bringing demand this year to almost 94 million bpd.

Yet crude fell because of fears of oversupply and high inventories. Every time demand goes up, it seems as if supply is right there to meet it, even though much of the world’s crude is still offline. (Iraq and Libya, parts of Nigerian production, U.S. shale oil, etc.)

The U.S. alone could easily expand its production via shale processing should prices rise. Libya and Iraq would not only be capable of offering more oil once their political situations are resolved, but go far beyond anything the world might need.

Our long-term fundamental outlook on crude is still topping out no higher than $70 per barrel unless something catastrophic happens politically.

Also at odds with the prediction of the 280K-barrel-per-day rise is the World Bank’s forecast of a global economy that will expand only by 2.8% rather than the earlier projected 3.00%.

The Greek problem is acting as a headwind in all markets, especially Europe, but elsewhere as well.

Statements from the International Monetary Fund on Thursday said "major differences" remain with Greece over an agreement to save the country from bankruptcy, in some of the Fund's most exasperated comments yet on the negotiations.

"There are major differences between us in most key areas," IMF spokesman Gerry Rice told reporters. "There has been no progress in narrowing these differences recently, and thus we are well away from an agreement."

The Greeks have needlessly politicized their profligacy. It’s come to the point where nobody wants them, and nobody really wants to help them. More knock-down-drag-out bickering will only serve to boost the dollar, put a drag on European recovery and certainly will depress the price of gold. That is, unless the problem becomes so bad that it draws out safe-haven buying from spooked European investors. 

Wishing you as always, good trading,