empty
26.07.2022 04:14 PM
Fed to curb inflation and commodity markets may threaten US dollar

The US Federal Open Market Committee will hold a meeting this week. The regulator may decide on a record-high rate hike of 0.75% at once. How can it affect the current situation and can the Fed curb inflation? Let's find the answers in this article.

In the run-up to the Fed meeting, analysts make a lot of forecasts. Some believe that the rate will be raised, after which the Federal Reserve will move to a softer policy, some, on the contrary, assume that the rate increase will fail to curb inflation, as a result of which the regulator will continue to tighten monetary policy. Some assume and hope that after the cycle of rate hikes, there will soon be a cycle of rate cuts and the quantitative easing program will be resumed. We can guess, but we have an objective indicator of the situation, namely the chart of the index of commodity futures prices - CRB, which allows us to make decisions based on the forecast of its movement (Figure 1).

This image is no longer relevant

Fig.1. Thomson Reuters/Jefferies CRB Index chart

The CRB Index tracks futures contracts for 21 strategic commodities, including oil, natural gas, industrial metals, food, and other assets, with energy commodities given greater weight, indicating their special role in global commodity price formation. Energy accounts for 39% of the index, giving it key importance (Figure 2).

There are other variants of displaying commodity prices in indices constructed according to different methods, but CRB is one of the oldest indicators and, as it seems to me, the most balanced one. This does not exclude the use of other variants of constructing commodity indicators for analysis either by weight or by different groups, but the principle of their use will be approximately the same. We analyze the behavior of the index and try to determine the most likely direction of movement.

This image is no longer relevant

Fig.2. Composition of the CRB commodity price index

Before making assumptions about future inflation, let's consider the movement of the CRB index (Figure 1). As it is seen on the chart, the peak of commodity prices was in June, when the index reached 330, after which there was a decrease, and in July CRB went into consolidation near the level of 280. Thus, we can state that in June and July commodity prices fell by 15%, which was reflected in a reduction of inflationary pressure. This allowed some analysts to declare that commodity prices had reached their peak, which means that the Fed will soon ease the pace of rate hikes, which, in turn, will have a positive effect on the US economy and the US stock market. Such statements, for example, were made by analysts of JP Morgan bank.

The correlation between interest rates and the commodity market can be described as follows: commodity prices rise, which raises inflation, and the Fed responds by raising rates, which slows the economy and makes the US dollar more expensive, resulting in lower demand for goods, and the more expensive US dollar makes commodity prices lower, which leads to less inflationary pressure.

However, as we can see on the chart, the prices of the commodities are now at the important technical support of 280, above the 200-day moving average. Thus, the current decline in commodity prices is not a reversal, but merely a correction to an uptrend.

If the Fed manages to curb oil prices by strengthening the US dollar and bring down other factors, such as a decline in the US stock market, then commodity prices may go down. This, in turn, is likely to weaken inflation. The problem is that the price of oil (Fig. 3) and other commodities have recently been out of the hands of the Fed, and oil prices are key to inflation and its pressure on the US economy.

The lack of ability to manipulate prices on US exchanges poses a significant limitation to the system that may prevent the Fed from implementing its plan to curb inflation by cooling the US economy. As it was noted above, unfortunately for the Biden administration, in recent years the price of oil has not been determined by the US, but by the OPEC+, which holds about 40% of world oil production.

This image is no longer relevant

Fig.3. Brent price chart

US domestic oil production is also important, but its level cannot be significantly increased shortly. US oil companies are exposed to rising costs associated with higher wages and materials. The industry has suffered from years of underfunding, and refineries have a worn-out infrastructure.

At the same time, the current prices are quite satisfactory for OPEC+. Despite its best efforts, the organization cannot increase production now. Russia is under sanctions, which has taken an additional 1 million barrels off the market. The problem is also that 65% of all proven oil reserves that could be exploited in the coming decades are owned by state companies from Saudi Arabia, the UAE, Kuwait, Russia, Venezuela, and Iran. Most of them are under US and EU sanctions.

If we talk about the current situation in the oil market, the market may be now forming a reversal to further price increases. As follows from the latest COT Report, traders are closing short positions they opened against purchases of oil-focused exchange-traded funds. These trades suggest that speculators, traders, and hedge fund managers may have begun to believe that the 20% collapse in oil prices that has lasted since mid-June may soon be over, and prices may rise soon.According to S3 Partners analyst company data quoted by Bloomberg, the largest US ETF focused on oil stocks, Energy Select Sector SPDR Fund (NYSEARCA: XLE), over the last month has reduced short positions by 14%. XLE assets consist of major US oil companies' stocks such as ExxonMobil, Chevron, Occidental, ConocoPhillips, and EOG Resources.

These signals from various markets confirm the idea that the decline of the US stock prices and even the fall of the US GDP into the negative zone may not lead to a decrease in oil prices, which will remain above $100 for Brent. At the same time, we cannot rule out the possibility of a decline in oil prices either.

In order not to sound confusing, I will tell you my plan. I opened a long position on North American oil WTI, available on the InstaTrade trading platform under the #CL ticker, with targets at 110 and 122.50 with a Stop Loss order placed below 90. The risk of the trade is no more than 1% of the deposit amount.

As for the Fed's actions to raise the rate, their efforts may not be efficient, resulting in both a higher rate and lower inflation, but that would be a different story. Be careful and follow risk management rules!

Daniel Adler,
Analytical expert of InstaTrade
© 2007-2025

Recommended Stories

黃金價格幾乎保持不變

黃金價格變動不大,交易員正在評估美國結束烏克蘭軍事衝突的努力,同時期待聯邦儲備系統在Jackson Hole的年度會議。 儘管解決危機的外交行動的實際影響尚不明朗,因此對地緣政治穩定性及貴金屬價值的影響仍不確定,投資者對這些外交行動持謹慎樂觀態度。

Jakub Novak 10:57 2025-08-19 UTC+2

什麼能幫助英鎊重回增長

儘管市場預期英國央行將維持利率在4%直到年底,但英鎊仍在走弱,因為通脹加速和更具韌性的經濟跡象減少了進一步降息的必要性。 週一,交易員降低了對今年再一次四分之一點利率削減的預期,一度掉期市場將此類動作的概率定價低於50%。

Jakub Novak 10:52 2025-08-19 UTC+2

市場陷入高位停滯。是否將出現下滑?

市場預期聯邦準備理事會在九月份降息,以及公司強勁的盈利,是推動標準普爾500指數接近歷史高位的兩大主要因素。第二季度每股收益總計上升了11%,遠高於華爾街分析師預期的4%。

Marek Petkovich 10:18 2025-08-19 UTC+2

市場將焦點轉向鮑威爾在傑克遜霍爾的演講(比特幣和黃金價格可能恢復增長)

雖然地緣政治仍然是市場關注的焦點——特別是美國總統唐納德·特朗普和俄羅斯總統弗拉基米爾·普京即將於週五舉行的峰會,以及昨日在大量歐洲領導人贊助下,弗拉基米爾·澤倫斯基對白宮的訪問——投資者開始將焦點轉向經濟問題,特別是聯邦儲備局主席傑羅姆·鮑威爾在傳統的傑克遜霍爾年會上的演講。 為什麼這次鮑威爾作為聯儲主席最後一次演講對投資者如此重要? 最近,由於美國勞動力市場明顯惡化,市場對聯邦儲備局降息的預期激增,儘管後來有所緩和。

Pati Gani 09:39 2025-08-19 UTC+2

八月十九日應注意什麼?初學者必須了解的基本事件分析

週二預計將發布多項宏觀經濟報告,但它們都是次要的。在美國,將發布建築許可和新屋開工報告。

Paolo Greco 07:03 2025-08-19 UTC+2

GBP/USD 概要 – 8月19日: Jerome Powell 的簡單演講

英鎊/美元貨幣對在上週五和週一幾乎停滯不前。市場波動性低,宏觀經濟和基本面事件的日曆依然空白。

Paolo Greco 04:15 2025-08-19 UTC+2

歐元/美元概況 – 8月19日:美元仍承受巨大壓力

周一,歐元/美元貨幣對的交易非常平靜,與週五的情況相似。儘管阿拉斯加發生了全球性事件,但市場依然極其安靜,僅對經濟數據和經濟發展作出反應。

Paolo Greco 04:15 2025-08-19 UTC+2

鮑威爾將明確聯儲會的主要目標,第二部分

傑羅姆·鮑威爾面臨著什麼選擇,以及哪些因素會對其產生影響?美國消費者物價指數正在上升。增長仍然是適度的,但已經幾乎超過目標水平的一倍半,而核心通脹則超過了3%。

Chin Zhao 01:05 2025-08-19 UTC+2

鮑威爾將界定聯儲局的主要目標。第一部分

本週經濟報告相對較少。然而,週五Jerome Powell將在Jackson Hole發表講話,同時最早於週二上午,烏克蘭和俄羅斯之間的停火條款可能會被公佈。

Chin Zhao 01:04 2025-08-19 UTC+2

AUD/USD。澳元處於十字路口

上週,澳洲聯儲將利率下調了25個基點,並宣布在「經濟條件允許的情況下」會採取進一步措施。一天之後,公佈的澳大利亞勞動市場增長的關鍵數據卻讓未來的貨幣寬鬆政策前景更為撲朔迷離。

Irina Manzenko 00:53 2025-08-19 UTC+2
现在无法通话?
提出您的问题,用 在线帮助.
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaTrade anyway.

We are sorry for any inconvenience caused by this message.