European markets underwent a fairly subdued session yesterday with the FTSE100 in particular struggling to make much headway above 6,800 due to continued weakness in commodity prices, with the sudden accelerated drop in the gold price knocking chunks out of the mining sector. A stronger US dollar, along with lower demand expectations has knocked commodity prices for six in the last few months, with gold playing catch up yesterday, falling below $1,100 for the first time since 2010, as the prospects for a rise in US rates against a benign inflation backdrop saw gold traders pile out of the yellow metal in the past few days. Gold wasn’t alone in feeling the pressure yesterday as commodity prices in general fell across the board with US oil prices falling back below $50 a barrel for the first time since early April. Given that weak commodity prices are likely to prompt a ripple out disinflationary effect it is hard to see how the Fed would even consider hiking rates against such a weak backdrop, something markets don’t appear to be considering at the moment. The feel good factor as Greece overcame its July funding hump appears to have largely already been priced in at the end of last week, as the €7.1bn made available by the EFSM transfer was soon largely reversed with the repayment to the ECB of its principal and interest of €4.2bn, while the IMF also saw the return of its €1.6bn repayment that was due at the end of June. While we also saw the Greek banks reopen with a weekly withdrawal limit of €420, capital controls continue to remain in place and are likely to remain that way for some time to come, given that the money left over from yesterday’s cash injection only came to about €380m, meaning that cash continues to remain tight. In May the UK government saw a rise in income tax and VAT receipts, which helped bring government borrowing down by over £2bn from the same time the previous year. Receipts from income tax hit their highest levels since 2011, which would appear to bode well as we embark on a new tax year, however with national debt now well north of £1.5trn the improvement shown in the May numbers needs to be sustained into the coming months as well, starting with the publication of the June numbers which are expected to improve further coming in at £8.9bn, an improvement from the £10.1bn in May. This improvement in tax receipts will be important over the coming months, particularly in light of the recent July budget which outlined further cuts to government spending, as the new government seeks to get the public finances under control, while not derailing economic growth. With inflationary pressures remaining subdued the Chancellor will be hoping that the services sector will be able to continue to keep the economy afloat, though the risk of a premature rate rise could well prompt some caution as we head into year end. EURUSD – the May lows at 1.0820 are an important barrier to a retest of levels last seen in April and a return to 1.0750, trend line support from the lows at 1.0460. The next support comes in at 1.0615, trend line support from the all-time lows at 0.8230. Pullbacks should find resistance at 1.0930. GBPUSD – the pound has struggled to move higher and could well sink back towards the 200 day MA at 1.5420 if it breaks below the 1.5530 level. There is currently decent resistance at the highs last week at 1.5675, which needs to break to retarget the 1.5820 level. EURGBP – last week’s break below the 0.7000 level opens up the November 2007 lows at 0.6920 on the way to a test of the 0.6740 level. We need to get back above the 0.7030 level to stabilise and argue for a return to the 0.7060 level. USDJPY – the recent rebound hasn’t as yet seen the US dollar push back above the 124.50 level, which is needed for a return to the 125.85 highs. Now that we’ve pushed back above the 123.30 level the odds have shifted in favour of a move back higher, but while 124.50 caps we could see the US dollar fall back first. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.