Commodity currencies pare losses

FX and Gold market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi, 

With risk recovering the higher risk beta currencies pared losses as traders cut back short AUD and CAD risk-off hedges. EURUSD and USDPY are both stable, meaning the DXY dollar index is also showing little drama.

The ECB’s determination to leave the door open to an additional rate cut most likely has EUR considerations as its driver.

A sharp sell-off in iron ore prices is a worrisome development for commodity linkers, more so Latin America producer and their currencies. China tightens bleeds into Asia risk assets like iron ore.

GBP is not showing the kind of sensitivity to risk. The lack of drama in much of the FX market may reflect a view that equity market tribulations are stock-specific VAR-styled sell-offs in nature rather than a reflection of global risk themes that would carry significant bond or cross-asset leakage.

At times it’s just hard to believe what you are seeing on the screen in equity markets these days.

The Malaysian Ringgit remains mired in range trading proclivities but trading with a negative slant due to weaker oil prices. But there is not much to get excited about these days, but that should change once the vaccine distribution rolls out and offers brighter days.

Bulls and bears still fighting it out for gold

Technically, bulls and bears are on a level playing field as spot sits on the main. Gold’s next upside target is a close above $1856 while support lies at $1825

The FED remains supportive for gold, though not price inspiring. And the biggest problem for gold is the market discussion remains on disinflation, not inflation.

Silver

And after running roughshod over Wall Street hedge funds short sellers in a hunted turn hunter scenarios, without oil commodity short seller as day traders are moving into commodities.

There have been many posts on social media yesterday about silver, suggesting the market is materially short. Silver prices jumped as high as USD26.95 an ounce. The price action is remindful of that seen in equities whereby shorts are getting squeezed – with a lot of the squeeze seeming to be driven by retail traders.