While we often take a fundamental approach to understand direction, we just as often take a quantitative approach to assess trade positioning. Particularly, a big part of our risk process is establishing where the prevailing trend is and then understanding its sustainability. Below, we show some of the measures we look at to understand momentum in currencies and select commodities:

We see above that popular short-dollar expressions from last year continue to see strong momentum to the downside, particularly for Euro, Yen, and Gold. This is coming when US real interest rates are picking up, offering a significant yield advantage over these assets. Hence, it makes sense that these continue to experience negative momentum. We show our momentum indicator for each of these below. We first show gold:

Gold is currently experiencing a counter-trend bounce. However, it will take a lot of price action to change the underlying trend ad we can see above. That being said, with downside momentum this extended, it is possible to see a moderation in the pace of declines in gold.

Next, we look at EURUSD:

After a stellar 2020, EURUSD remains a strong downside call for us in 2021. US relative outperformance will likely push the Euro lower- but with momentum this stretched, we might see a breather.

Finally, we look at the USDJPY (inverted):

The Yen has seen significant weakness as this safe-haven currency has experienced both outflows and debasement by its central bank actions. Momentum to the downside has been significant over the last few months.


Overall, these expressions of dollar alternatives have seen significant losses as US yields have risen. A US recovery increases the attractiveness of US assets relative to these alternatives. We’re likely only seeing the start of these moves- though, from a momentum perspective, it is worth noting that these moves all look extended.