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 has given back some gain over the last 24 hours, giving the Yen and Pound respite. We don’t think this intraday move is indicative of anything significant. We still think we’re in an environment where the dollar will continue to see inflows versus other reserve currencies. Further, the dollar seems to be decisively pulling capital out of EMFX now:

Particularly, Asia FX has been getting battered over the last 6 months, with the commodity currency bloc seeing losses over the same period. This doesn’t mean that commodities themselves cannot perform in the immediate future, but rather that capital outflows from the US on the back of risk-on sentiment are reversing. Further, we have seen further evidence of supply remaining tight, coming from OPEC+ and today’s oil inventories report, supporting stronger commodities.  With this in mind, we take a look at the price action in commodities through the lenses 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!