Karpel’s Corner: Fed Still Dovish Thanks to Commodity Weakness

Welcome to Karpel’s Corner. This is where I throw out my thoughts on the markets and share some of my favorite strategies. I keep it market-focused, and never miss an opportunity to teach trading strategies and commentate on the latest trends affecting the financial markets. Hope you enjoy today’s post!

Global bankers have growing deflation concerns as QE3 sails. To determine why, look at the recent slide in commodity prices: Grains ($JJG) down 30 percent, Oil ($USO) down 20 percent, and Metals ($XME) down 22 percent.

While the rest of the world has its focus on the threat of deflation, the Fed is concerned that U.S. inflation is well below its target level of 2 percent. I can almost hear Janet Yellen talking about commodities like copper and crude oil at the last Fed meeting; searching for any signs of a bottom.

The CRB Index is still testing major chart support along its 2012/2013 lows. It is in the most oversold territory since spring of 2012. If we see a decisive drop below the low in 2012 it would be bearish for commodities. This would signal even lower inflation.

It has the Fed adapting a more dovish tone with rate increases. Now, let the volatility begin!

See you next time at the Corner!