FXTM information and reviews
OctaFX information and reviews
XM information and reviews
FXCC information and reviews
Libertex information and reviews
FxPro information and reviews

Commodities get close attention

27 June 2022 Written by Chris Weston  Pepperstone Head of Research Chris Weston

On the week we saw the US500 +6.7%, NAS100 +8.9%, FRA40 +3.2%, HK50 +3.1%, Crude -3.1%, and Copper -6.7%, while the NOK was the best performing G10 currency and the JPY the worst. The USD has eased back following US 2yr Treasury yields, which have pulled back from 3.45% to 3.06%, and we see a pennant consolidation pattern in the USDX daily that needs to play out and may impact sentiment in broad markets when it does. Certainly, the mood in equities has lifted but remains unconvinced and we’ve seen both the US500 and NAS100 fill and break above their respective 10 June gap – will month-end flows continue to support, with further fund rebalancing, trader short-covering and relief buying?

Clearly, sentiment was so shot to pieces and positioning so light into mid-June that (with hindsight) there was always going to be a risk of a sustained bear market rally in risk assets, but let’s see if the bulls can build on this, as we assess the potential to take the NAS100 into 12,800 and US500 into 4100 – how the market digests this week’s economic data will be closely watched, notably the US ISM manufacturing report.

With Jay Powell validating the ‘recession’ callers growing belief, there has been some easing in US and global rate hike expectations, with 29bp priced out of the US swaps market over the next two years. FX volatility (vol) has dropped, and most pairs on my vol matrix sit around the 40th percentile of the 12-month range. Equity vol is still elevated with the VIX index at 27.23% and there is scope for the market to push into the 23-25% range. We see the CBOE S&P 500 put/call ratio dropping back to 0.51 and well off the highs we saw in April/May, so the demand for puts and portfolio hedges has been unwound.

Anyhow, keeping a close eye on US equity indices, crude, and commodities more broadly and what they signal on growth. Copper has become the bellwether again on economics and having lost 16% in the past 14 days, this is one that is getting the love from the shorts – that said, we saw some indecision to push this far below $3.70 on Friday and shorts are at risk of a quick move into $3.95. Keen to watch the XLE ETF (energy sector) and whether this can find buyers, I see risks that will be the case.

Key themes aside, here are the core focal points. Anything growth focused seems key – notably the US ISM manufacturing report later in the week may get the lions share of attention. A G7 plan to ban gold imports is unlikely to promote too much reaction from Putin, but it does suggest keeping an eye on XAUUSD, while talk of oil price caps is worth exploring too. If cant see the pictures clearly, here's the Twitter link for clarity.

Interest rate expectations – I’ve looked at the implied rate for each meeting (using swaps and futures pricing). I’ve looked at the step-up in rate hike expectations for each following meeting. For example, we see 70bp of hikes priced for the July FOMC meeting, with a further 57bp priced for the September meeting. We see 45bp priced for the next RBA meeting, which suggests if the RBA meeting was today and they hiked by 50bp – without considering the outlook and how it reconciles with the forward pricing, the AUD shouldn’t move on a 50bp hike.

Implied volatility matrix – Again, I looked at the options market and the implied volatility priced by dealers – we can then look out and calculate the implied trading range. This is one of the only forward-looking guides and is based on expectations of movement. I find it useful to understand how the market is feeling about key event risks and how to guide my risk and we can also use it for mean reversion levels. With vols pulling back it suggests closer stop placement which means potentially increasing position sizing. Positioning – here I’ve looked at the CoT/TFF futures report on positioning in our most traded markets and added the current skew of longs from clients.




Penny Stocks: What Are They?
Penny Stocks: What Are They?

Locating penny stocks with buy ratings is getting more and more challenging. The markets become less adventurous as interest rates rise. That indicates that penny stocks, which are riskier by definition...

20 Sep 2022

Bitcoin and Ethereum: Inflation Brought Down The Prices
Bitcoin and Ethereum: Inflation Brought Down The Prices

Strong inflation brought down the price of bitcoin yesterday from $22,800 to the $20,000 support level. This morning, the price of Ethereum formed a new seven-day low at the $1550 level...

15 Sep 2022

Cooler USD & Stocks Higher Ahead of CPI
Cooler USD & Stocks Higher Ahead of CPI

USDIndex – Slips (108.00 tested) for a 5th straight day, lifting EUR & GBP. Fed Funds Futures back to 90% chance of 75 bp (third consecutive) hike...

14 Sep 2022

Copper’s Price: What’s happening?
Copper’s Price: What’s happening?

In this article, we will discuss what has happened to the price of copper. When your money loses some of its purchasing power, you stop caring about supply and demand...

14 Sep 2022

The Inflation Monster Strikes. Better One Small Fish Than An Empty Dish
The Inflation Monster Strikes. Better One Small Fish Than An Empty Dish

London Mayor Sadiq Khan says that millions of Britons won’t be able to afford heating or basic food this winter if things remain as they are now. The present state of affairs has no precedents in the past...

9 Sep 2022

After a recent selloff, Wall Street is expected to rise
After a recent selloff, Wall Street is expected to rise

Expectations that the Federal Reserve might lower interest rates to combat inflation. This idea did not have a chance because of the labor market data. Investors are concerned...

7 Sep 2022

Editors' Picks

HFM information and reviews
IronFX information and reviews
FXCM information and reviews
NordFX information and reviews
Vantage information and reviews
FP Markets information and reviews
FP Markets

© 2006-2022 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.