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Whip-Sawed U.S. Dollar Fuels Commodity Market Volatility

Commodities had a volatile week with some of the price action driven by the two-sided U.S. Dollar and some by market related fundamentals. Overall, hawkish testimony from Fed Chair Jerome Powell and negatively-viewed comments from U.S. President Trump seemed to be the main catalysts driving a few of the markets in two directions.

Gold

Gold prices were driven lower last week by the threat of rising interest rates amid hawkish testimony by Fed Chair Jerome Powell before two U.S. Congressional Committees. Prices were supported somewhat after President Trump criticized the Fed's monetary policy.

Powell's testimony supported the U.S. Dollar which pressured dollar-denominated gold. Trump's comments weakened the dollar which encouraged gold short-sellers to book profits and lighten up their positions. The potentially offsetting comments fueled a two-sided trade in gold prices .

During his testimony, Powell reiterated the Fed's current message, offering a positive assessment of the economy and indicating that the economy was strong enough to handle gradual rate increases.

Trump criticized the Fed twice, first saying on Thursday, "I am not happy about it. But at the same time I'm letting them (the Fed) do what they feel is best," the president said. Trump followed-up this comment on Friday by tweeting, "The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates - Really?"

Trump also said he was prepared to place a tariff on everything that China exports to the United States.

Crude Oil

Both U.S. West Texas Intermediate and international-bench mark Brent crude oil finished lower last week. However, the price action was two-sided. Early in the week, prices plunged after Libya began supplying the market again after weeks of disruption. Prices were also pressured by speculation that the U.S. would open its strategic reserve and flood the market with supply.

WTI and Brent crude oil rebounded late in the week to recover some of its earlier losses after the U.S. Energy Department reported a bigger-than-expected draw in gasoline inventories. Prices were further supported by news that Saudi Arabia would cut back on exports.

Natural Gas

Sellers drove natural gas prices to their lowest level since December 27, 2017 on concerns over strong production and a return to average temperatures in several key demand areas. However, futures prices were able to recover enough to close slightly higher for the week after the U.S. Energy Information Administration reported a smaller-than-expected storage injection during the week-ending July 13, 2018.

During the upcoming week, investors should watch to see if a few of the counter-trend rallies continue especially in the dollar-denominated markets like gold and crude oil.

This article was originally posted on FX Empire

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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