Crude oil remains under pressure in European morning as stock markets drop and USD strengthens. Currently trading at 69.5, the benchmark contract for crude oil plunged to as low as 68.84 before recovery.

After OPEC and the US Energy Department, the International Energy Agency (IEA) has released its monthly oil market outlook. IEA slightly revised up demand forecasts for 2009 and 2010 by 0.19m bpd to 83.94M bpd and 0.07M bpd to 85.25M bpd, respectively, driven by stronger outlook in Asian regions.

Although the inventory report by US Energy Department is crucial for gauging the demand/supply outlook in the energy market, investors' attention has been placed on the Fed's meeting and BOE's inflation report. Commodity price movements have also been more directed by sentiment.

The Bank of England said in its quarterly Inflation Report that the UK inflation may miss the target of 2%. At the MPC meeting last week, policymakers decided to extend the asset buying program to 175B pound. As stated in the report, 'the stimulus should lead to a slow recovery in economic activity, but the timing and strength of that recovery remains highly uncertain'.

Also released today, UK's unemployment rate rose to 7.8% in June, the highest since 1996, as the number of job losses in the 3 months through June increase to 2.44M. Released last week, unemployment rate in the US unexpected lowered to 9.4% in July from 9.5% in the prior month

Both UK's stocks and the pound plummeted before recovery after the news. The FTSE 100 Index slid to -0.8% to 4631.7 but then rebounded and is currently trading +0.5% at 4693.7. British pound also fell after the BOE said that CPI may miss target.GBP slid to as low as 1.6434 from yesterday's close of 1.6478 against the dollar.

Earlier in Asia, stocks fell as driven by correction in Chinese shares. The MSCI Asia Pacific Index plunged -1.3%. In China, the Shanghai Composite Index slumped -4.7% while Hong Kong's Hang Seng sank -3%. Investors worried that recent rally has been overdone.

Currently trading at 944, gold price drifts lower as USD rises further ahead of the FOMC meeting. There are several issues that investors should pay attention to in the Fed's statement. Although the market has fueled speculations that the Fed will start raising interest rate in January or as early as later this year, it's more likely that the central bank will state the current low interest rate will stay for 'an extended period'. Moreover, the Fed may state that the $300B asset purchase program will end as scheduled in September. In previous meetings, the Fed said 'the Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted'. If the Fed clearly tells us that it will not extend the program, that means recent improvement in economic data have been acknowledged by the members. Moreover, we also expect the Fed to upgrade its economic outlook.

Should these comments materialize, the dollar should surge further and gold will be under bigger pressure in the near-term.