The euro fell against the greenback on news that the Eurozone manufacturing and services sector contracted more than the market was expecting in June. German Ifo also dropped more than the market was expecting. The weak data out of Europe lessens the potential for an ECB rate hike next month.

However, all eyes will be on the Fed this week. It is widely believed that the Fed will hold steady on interest rates when they make their announcement on Wednesday.

The market will be eying the policy statement for clues about the possible launch of a tightening cycle later this year. Rather strong references to price risks are likely in the policy statement, which should provide enough ambiguity to prevent aggressive short-term bets against the dollar.

Fed speak has had a decidedly more hawkish tone in recent weeks. Heightened expectations that the Fed is on the verge of launching a tightening cycle to deal with inflation have contributed to a firmer dollar tone.

Fed funds futures suggest that expectations for the first Fed rate hike are shifting to later in the year. The odds of a 25bp hike in Aug have now dropped to just 34%, from a high of 75% earlier in the month. Risk of a series of rate hikes into early next year have diminished significantly over the past week.

The S&P/Case-Shiller home price index for Apr comes out on Tuesday. The market is looking for another decline. I have been maintaining that a rate hike this summer, while the housing market is still on the ropes, is rather unlikely.

Oil remains well bid in the wake of yesterday's emergency meeting of oil producers, consumers and global oil companies in Jeddah, Saudi Arabia. As expected, there was a fair amount of disagreement as to what was driving crude prices higher. And of course there was plenty of railing against speculators.

The participants agreed to enhance cooperation and transparency, but arguably nothing substantive came out of the meeting. While Saudi Arabia did agree to pump more oil for the remainder of the year if there is demand, crude prices remain stubbornly resilient.

Nigerian rebels, who have reeked havoc on the country's oil output, have reportedly agreed to a cease fire. While this should lead to stabilization of supplies from Africa's second largest exporter of oil, a sustained correction in prices has yet to materialize.

Nigeria was formerly the largest exporter on the continent, but rebel attacks curtailed output to the point that Nigeria dropped to the number two spot behind Angola.

Based on the reports I've read about the Jeddah meeting, one might assume that the role low interest rates and the weak dollar have played in surging oil prices were not addressed at all. Somebody had to bring that up, right?

And what about speculation surrounding an impending attack on Iran? The ratcheting up of geopolitical tensions in the Middle East have certainly factored in to higher energy prices, but again, according to reports on the oil summit this topic didn't get any play either.

Look for oil to continue to underpin the gold market as inflation expectations remain unanchored.

Gold Market Movers:

German Ifo for June dropped sharply to 101.3.

Eurozone manufacturing PMI for June fell to 49.1, services fell to 49.5.

UK Rightmove house price index for June -1.2% m/m, +0.1% y/y.

Japan MoF business outlook survey index falls to -15.2.