The Need for Confident Sounding Policy From Fed Chair Kevin Warsh
Forgive me please if the following appears to be a vacuum trying to suck a complex web of risk events and their effects on the speculative nature of commodities and Forex. Yet, the state of the world means that technical and fundamentals are clashing significantly and it would be foolish to make believe influences do not exists. Today the Federal Reserve will deliver its FOMC Statement (and the word statement is emphasized because no interest rate hike is expected).
However, considering the surprise delivered from Brazil via its election results on Sunday and reactions in the Ibovespa and USD/BRL afterwards, it might be wise too brace for the potential of additional dynamics. But I do not want to digress, because price action and velocity are natural parts of the financial world and in fact act as a barometer regarding how economic and political outlooks are converging.
Gold Price as of 28th October and Viridian Commodity Forecast
Fed Chairman Kevin Warsh remains under a bright light. He didn’t exactly take the helm of the U.S central bank in the most tranquil of times. Thus, it is difficult to blame him quite yet for the mess and quandary the Federal Reserve finds itself trying to navigate. Energy costs remain high and will so for the foreseeable future. The Iran war looks a long way from being solved in the coming month (‘months’ may be the more appropriate word choice), although saber-rattling and outright military escalation may in fact be coming sooner rather than later. This depending on President Trump and his loud threats and ability to follow up on his rhetoric and negotiation methods, and or the ability of the Iranian and all other factions converging on a compromise (which doesn’t looking forthcoming).
Meaning if WTI Crude Oil remains at its current price levels over $100.00 consistently, this as war drums bang it will not be a surprise. According to Viridian Commodity Intelligence based on shipping and supply and other logical predictions which factor in higher prices as as caution reigns, support levels in the Crude Oil sector will likely remain durable until an end game is reached with results large players feel comfortable within – including nations – and good luck trying to achieve this type of solution folks. Which brings us back to Fed Chairman Kevin Warsh and other FOMC officials who understand inflation is being caused by geo-political upheavals creating higher energy costs. There is little the Fed can do to fight expensive fuel costs and the effect on logistics, manufacturing and agriculture remains a losing game until a conclusion of the Iranian quagmire is attained.
WTI Crude Oil Price as of 28th October and Viridian Forecast
Thus, even as the Fed has shown no signs of raising interest rates today, the next FOMC decision on the 9th of December will remain under the same storm clouds. The energy situation is not likely to have been fixed by then. Warsh must deliver a determined policy stance and tell the public (and investors) that he remains confident in the U.S economy as it faces inflation caused by energy prices; the economy may be challenged in the mid-term but no additional interest rate hikes are planned. Except for the problem, Kevin Warsh has not expressed this viewpoint forcefully yet – creating USD centric strength in the meantime.
Gold Recovery Coming Or Wishful Biased Thoughts?
A bold Federal Reserve stance would potentially help ease U.S Treasury yields too. The prevailing fragility in equity indices may also press more investors into U.S bonds which would supposedly help yields come down a bit too. And this brings up the specter of gold which is producing a battle for value near the $4,050.00 mark as of this writing and has gone below $4,000.00 recently. Even in the wake of global risk events the price of the precious metal has looked strained (nixing notions of a safe haven momentarily). USD centric price action has created headwinds against gold, along with the elevated U.S Treasury yields. However, support levels have looked reasonably stable near $4000,00 and the price of the commodity appears undervalued from my (possibly gold bug) eyes.
USD/JPY Implications and Gameplan
Forex will remain tricky short and near-term, particularly for the USD/JPY, as the the Fed makes its rhetoric stance today and the Bank of Japan speaks on Friday. Japanese Yen traders may have taken advantage of oversold conditions which appeared late last week, but retail traders should note that volatility will remain a steady diet as large players speculate and seek additional momentum waves over the next two and half days.
The higher realms of the USD/JPY are not likely to disappear anytime soon. However, retail traders need to be wary of actual interventions from the Bank of Japan in order to counter blind buying of the currency pair by large players and financial houses based on their poor outlooks for the Japanese Yen based on their lack of confidence in BoJ policy.
Coffee Trading and the USD/BRL
From the commodity standpoint both WTI Crude Oil and gold have definite causation and in some sense their trading realms feel as if they are known for speculators who have the ability to tackle risk taking with solid tactics. The same cannot be said exactly for Coffee, which could face complications and shock waves potentially in the coming days and weeks as growers and producers, wholesalers and their large buyers have to deal with the potential of a weakened Brazilian Real.
The BRL was trading near 5.0500 in a relatively calm and bearish trend within the USD/BRL into last Friday and all seemed like it would remain tranquil after the weekend. And then came the early Monday surprise (for many – including myself) via results from the Brazilian election in which Lula da Silva won another term as President. The USD/BRL before Forex trading begins today is near 5.3500. Coffee traders may be bracing for some shockwaves if the value of the currency pair doesn’t recover to lower ground in the coming days and week. No Brazil is not the sole producer of Robusta (and Conilon) and Arabica Coffee, but its influence in markets remains important – even if solid supply is known to exists in other global locales.
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