We saw some interesting moves post the Powell speech yesterday. The USD got sold, equities got bought and gold reacted by popping higher, with the reaction in gold as the classical USD weakening trade.
Gold has been a complex trade last months. The positioning and the “Fed” related set up has been appealing for a contrarian long view on gold, but the yellow metal has had very big problems taking out the 1235 resistance. There is a small positive channel in place from recent lows, but if this is to break up, we must see gold close above the 1235 resistance sooner than later.
Oil, black gold, has similar “USD logic” as gold, but has the OPEC, headline risks and Trump´s tweets as extra features. By now everybody knows oil moves one way only. The brief break below the 50 USD level was quickly reversed post the Russian output news today. 50 USD is a huge level we have been pointing out various times over the past weeks. A proper bounce on this level, and many “noveau” bears could be caught quickly wrong.
Net non-commercial oil longs have been in full implosion mode lately. We have not seen such a big in many years.
Whenever assets experience extreme moves accompanied with exploding volatilities, we tend to start preparing for possible contrarian trades. Oil volatility, OIV, has simply exploded to the upside as oil has collapsed. Note the big reversals in oil (orange) since 2015 have all been accompanied with big spikes in the OIV index (white).
The USD index fell post the Powell event yesterday. If this is a top or not we leave to pundits to debate, but 97.5/98 is huge resistance for the DXY index.
One thing is clear though and doesn´t need to be debated. Crowded positions this year have been killing p/l on a global basis. The USD is still a rather crowded long trade. Below is a chart of the DXY index (orange) versus net non-commercials USD futures (white).
If the aggregate USD long is to be washed out or not remains to be seen, but we note that the two assets both priced and dependent on the USD, gold and oil, have seen the relative spread between the two collapse massively over past weeks. Depending on your view on the USD, gold and oil could offer interesting trades.
Given the fact gold has had problems breaking above the 1235 level while oil seems to be bouncing, maybe a contrarian spread of the below chart could be something for the global player? For the truly (lone) USD bear maybe both yellow and black gold offer interesting long plays here.
Source: charts by Bloomberg