Reflation seems to be taking a breather these last two days, still the best performing asset versus the dollar on the week, though. Gold continues to take a beating after seeing some strengthening:

We outlined our expectations for today’s FOMC meeting here: https://blog.fxdd.com/2021/06/15/on-the-daily-commodities-fed/

We think that Powell will likely be able to thread the needle about inflation. However, we do think it is important to note Powell’s track record on press conferences isn’t a strong one:

Image*Source: Bespoke Investment Group 

Above, we can see that the stock market has historically had a quite tepid response to Powell’s press conferences. Now, our view is not one for the intraday but one likely to be played out over the next few months. If Powell is indeed dovish (as we expect), then he will likely cement conditions for another leg higher in commodities. However, cross-currents are emerging on the global front for commodities. China is attempting to slow the rapid ascent of commodity prices by releasing some of its strategic reserves, particularly copper, aluminum, and zinc. While this is marginally negative for these specific assets, we see most demand currently coming from the economic re-opening of the US, UK, and Europe. Therefore, we think commodities could remain well supported if the Fed is indeed accommodative.

Looking at the market action through our Trading Tools, commodities indeed continue to look attractive:

As a refresher on our lenses:

  • Trading Range: These ranges represent a trading bank within which a currency should trade based on multiple market factors. If we are long- prices above the upside range indicate the asset is expensive, and prices below the downside range suggest that they are cheap and vice versa if we are short.
  • Year-to-Date Returns: This is the price performance of a given currency over the course of the current calendar year, in percentage terms. We also compare the current price to the 52-week high and low for reference.
  • Price Momentum: This looks at cumulative rolling returns for a selected lookback period.  Positive momentum is good if we are long and bad if we are short. 
  • Implied Volatility Discount/Premium: This tells us what the market expects in volatility relative to the history of volatility. If we are long a currency, we typically want market implied volatility to be higher than historical volatility and vice versa if we are short.

As a reminder- it is not just enough to have the technical tools we provide here daily. You need to know the fundamental developments in markets that are driving these moves promptly. Head to https://www.fxdd.com/mt/en to get access to our research and analysis!