Commodities Market News

The yen has flourished in a risk-off environment with the added benefit of a dovish Fed and renewed bets of a BOJ hike. Commodity FX and metals were also dragged lower in the carnage.

Large speculators surged into GBP/USD long bets last week, pushing net-long exposure to a record high and at the fastest weekly pace since records began. They also continued to trim net-short exposure to yen futures for a second week, after it nearly reached a record high of its own.

A combination of factors drew WTI crude oil bulls from the side line on Wednesday, which brings $85 back into focus. Gold didn’t have such luck despite hitting a record high the day prior.

Large speculators flipped to net-long exposure to EUR/USD futures after a 2-week hiatus, whilst AUD/USD breached the bullish threshold for the first time in three years according to the commitment of traders report (COT).

Rate cut expectations from the Federal Reserve are back driving the gold price, making it a relatively easy task of knowing what to focus on in the week ahead. The challenge is knowing how they may evolve given multiple rate cuts are already priced over the remainder of the year.

This week’s marquee economic release, the US CPI report, looms large as a potential breakout catalyst for Silver and Gold tomorrow.

Gold and silver have been strongly correlated with copper futures over the past fortnight. The negative correlation with the US dollar index, US two-year Treasury yields and Fed funds futures curve has also strengthened. Combined, it suggests base and precious metals are once again being driven by the US interest rate outlook.

Hang Seng's strong correlation with COMEX copper and SGX iron ore futures over the past month suggests many traders are using it as a mechanism to speculate on the outlook for Chinese industrial activity, especially the housing market.

Gold has been dancing to its own tune recently. The strong, positive correlation with other metals prices has weakened over the past month. So too its relationship with the US dollar and real US bond yields, its traditional drivers – it’s basically nonexistent. The lack of key drivers puts more emphasis on the price action for directional clues.

Tuesday looms as a great day to wait and observe the price action in WTI crude following another powerful surge, leaving the benchmark at a key level it struggled to overcome in the past. Its performance may provide a strong signal on whether to get onboard the bullish move or get setup for shorts on a possible swing top.

Given significant uncertainty towards the demand outlook, it may be preferable to let the price action tell us what to do rather than pre-empt on fundamental grounds.

Bears were busy last week as they piled into shorts against EUR/USD and the Dow Jones, and also reached a record level of net-short exposure to the Canadian dollar. And this was beneficial for USD bulls.

Crude oil surges 8% in four sessions. But volumes were nowhere near as bullish as the price action would suggest. Given its struggles above these levels, waiting for a topping pattern to go short is favoured.

Traders may have reduced net-long exposure to USD futures in aggregate, but they remain net-long and a bullish reversal week formed on the USD index. We also take a look at GBP/USD, gold, WTI crude oil and US indices positioning (S&P 500, Dow Jones, Nasdaq 100).

Iron ore futures are climbing off the canvas after a rough trot, surging higher on Thursday on the back of large gains in Chinese steel markets. But the reason behind the sudden buying burst makes you question whether the move will last, especially with inventories incredibly bloated relative to seasonal norms.

With a solid US ISM services PMI print and rate cut from the Bank of Canada (BoC) helping to fuel the soft-landing narrative, the rout in WTI crude oil reversed on Wednesday, delivering a bullish technical pattern that points to the potential of further gains ahead.