Euro’s Recovery Helps Boost Appetite for Higher Risk Commodities

The Euro is holding on to the strong gains it posted on Wednesday as traders express optimism that Italian leaders could move to mitigate political turbulence and avoid a potentially disruptive early election. The move helped pressure the U.S. Dollar against a basket of currencies because while driving up demand for higher risk assets as well as commodities.

The single-currency was helped on Wednesday by positive comments from Italian Prime Minister-designate Carlo Cottarelli, who said that possibilities had emerged “for the birth of a political government,” suggesting politicians, rather than technocrats like himself, might be able to steer the country out of deadlock.

The rise in the Euro was detrimental to the U.S. Dollar. This helped boost the commodity-linked currencies and commodities like copper and gold. Crude oil may have also been boosted a little by increased demand for risk.

Copper

Copper fell to a three-month low early Wednesday, pressured by a firmer U.S. Dollar and as Italy’s deepening political crisis pulled investors out of risky assets. Renewed tensions between the United States and China also weighed on sentiment, after Beijing slammed Washington’s unexpected statement that it will press ahead with tariffs and restrictions on investments by Chinese companies.

However, prices rebounded when the Euro mounted a dramatic recovery on optimism that a deal could be worked out to avoid another round of elections in Italy. This helped drive down the U.S. Dollar, while stocks recovered most of the previous day’s loss. This chased copper’s short-sellers out of the market, leading to a technical closing price reversal bottom.

July Comex High Grade Copper futures settled at $3.0690, up 0.0065 or +0.21%.

Despite the rally, copper could still be pressured because of a possible trade war between the United States and China, and perhaps the European Union.

Gold

Gold inched up on Wednesday as the U.S. Dollar eased from a 6 ½ month high against a basket of currencies. The weaker U.S. Dollar helped drive up demand for the dollar-denominated gold market. However, gains were likely limited by a rebound in U.S. Treasury yields. Gold does not pay a dividend or interest so it tends to weaken in a rising interest rate environment.

August Comex Gold futures settled at $1306.50, up $2.40 or +0.18%.

Gold was also boosted by weaker-than-expected U.S. economic data. U.S. GDP slowed slightly more than initially thought in the first quarter as consumer spending rose at its weakest pace in nearly five years.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil settled higher as investors used the weaker U.S. Dollar as an excuse to book profits in the dollar-denominated market after the steep four-day sell-off.

July WTI Crude Oil settled at $68.21, up $1.48 or +2.17% and August Brent crude oil finished the session at $77.72, up $2.23 or +2.87%.

Traders may have also reacted to reports that Russia’s central bank expressed caution on plans to boost oil supply. Traders also initially shrugged off an unexpected build in U.S. crude stockpiles.