Today, we think markets will wait on Powell’s testimony. In the meantime, commodities retraced some losses, and gold continued to grind lower:

Looking at our currency blocs, we see that the majority of FX weakness versus the dollar is coming from the Yuan Bloc, symptomatic of capital outflows on weaker Federal Reserve liquidity supply:

We’ll keep it brief today, but we’re carefully watching price action in gold going into Powell testimony today. First, we need to see how Powell’s tilt (hawkish or dovish) translates into gold price action. This will give us a good sense of what markets are expecting in terms of the current economic regime:

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!