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Fed Speakers Press On The Dollar, Boosting Techs And Commodities

By FxPro Financial Services Ltd (Alexander Kuptsikevich)CommoditiesMay 25, 2021 08:07AM ET
www.investing.com/analysis/fed-speakers-press-on-the-dollar-boosting-techs-and-commodities-200582191
Fed Speakers Press On The Dollar, Boosting Techs And Commodities
By FxPro Financial Services Ltd (Alexander Kuptsikevich)   |  May 25, 2021 08:07AM ET
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Fed officials continue to extinguish the inflationary panic and help markets return to last year's major trends. In particular, yesterday, we saw an acceleration in high-tech stocks and a simultaneous weakening of the dollar. Commodities and metals lagged in their momentum, but in our view, remain potentially attractive for the longer term.
 
Investors are selling off dollars and entering growth stocks, convinced that the recent spike in inflation will not lead to a tightening of monetary policy.

Investors are entering growth stocks, convinced by Fed
Investors are entering growth stocks, convinced by Fed

The NASDAQ index is up 1.8% for the day versus 1% for the S&P500 and 0.5% for the Dow Jones. Meanwhile, the year-to-date dynamics of the indices are reversed, with NASDAQ 100, the laggard in this trio, adding only 7.5%, while S&P 500 gained 13.4%, and Dow Jones is up 13.8%. The high-tech giants have more upside potential and may benefit from a short-term portfolio rebalancing.
 
Potentially, the political stance of "lower rates for the longer" is a breeding ground for demand for commodity assets. However, it is difficult for gold to gain new supporters at this stage. The reflex that market participants have developed in recent months suggests a moderate downturn in the price of the precious metal: If inflation is not a problem, insurance against it falls in price.

Gold looks short-term overbought
Gold looks short-term overbought

In addition, gold looks short-term overbought, having climbed above 70 in the RSI on the daily charts. In the near term, we might well see a consolidation near the current levels with the range of $1844 (200-day moving average) and $1900, an important round level, and the historical high area of 2011.
 
Looking beyond short-term fluctuations, it makes sense to remain bullish on commodity assets. The Fed's reluctance to fight the first signs of inflation is fertile ground for higher prices.
Brent: move above $70 could see the bears capitulation
Brent: move above $70 could see the bears capitulation

The idea of a global minimum corporate tax is actively promoted, and politicians remain hopeful that a 15% minimum rate will be agreed upon in the coming weeks. If so, the profits of global corporations are in jeopardy. Most of these are high-tech companies. Broader implications of this are the risk for the so-called 'Amazon (NASDAQ:AMZN) effect', where the digitalisation of business and logistics drives down the price of goods. The world could be deprived of an important deflationary driver, which would further boost inflation.

In addition to gold, oil is also worth watching: Brent is once again close to $68.50, an area of highs in the last two years. A move above $70 could see the bears capitulation, with the bulls gathering strength after a three-month consolidation to send the exchange rate into a new $70-80 trading range.

The FxPro analyst Team

Fed Speakers Press On The Dollar, Boosting Techs And Commodities
 

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Fed Speakers Press On The Dollar, Boosting Techs And Commodities

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Rose Mary May 25, 2021 10:40AM ET
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