Welcome back to On the Daily, where we contextualize economic data, and market moves using our research process. Let’s start by looking at major FX moves versus the dollar:

The dollar was broadly weaker last week, with gold showing the most strength. Looking at this through the lenses of our Currency Bloc analysis:

We see a similar trend, but the Yuan Bloc (think Asia FX) continued to see outflows. The most important marginal change to the current environment on newsflow was the emergence of a “no-deal” at the OPEC+ meeting. The most immediate effect of the breakdown is that, unless an agreement can be salvaged, the Organization of Petroleum Exporting Countries and its allies won’t increase production for August. That will deprive the global economy of vital extra supplies as demand recovers rapidly from the coronavirus pandemic. As of now, this hasn’t translated into a huge outperformance for oil on the daily/weekly level, but we expect this tightening supply dynamic to boost higher oil:

This is given a backdrop of accelerating growth across the globe in the near term, according to our economic forecasting models:

Therefore, the reflation trade, i.e., higher commodities, continues to look fundamentally supported. We show this trade from the perspective of our Trading Tools Report:

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!