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Euro FX has rallied to the upper boundary of a decade-long descending channel, a level that has capped upside attempts for years. The dollar’s next move will likely help determine whether this becomes a breakout, or a rejection that keeps price contained within the channel.

Gold and silver surged into late January before reversing sharply, while natural gas saw an abrupt repricing as near-term fundamentals shifted. The swings have been unusually large by historical standards.

While gold and silver have been far more volatile in recent weeks, copper has continued to trend higher in a steadier fashion. The copper-gold ratio is now testing a long-term support line, which has generally marked the next leg higher for copper prices.

Soybean oil has completed a cup-and-handle pattern, with prices breaking out higher.

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The past two weeks have been defined by sharp, fast moves across commodities. Gold fell as much as 12% intraday after hitting a fresh record near $5,600, while silver dropped roughly 30% from its peak above $120 before finding its footing. At the same time, U.S. natural gas saw a one-day decline of about 26% as forecasts shifted warmer and the market quickly repriced near-term heating demand. Taken together, markets have been jittery, with crowded positioning and fragile sentiment.

A potential stabilizing development has been President Trump’s announcement of his intent to nominate Kevin Warsh to succeed Jerome Powell as Fed chair. Markets are viewing Warsh as a familiar figure, having served on the Fed’s Board of Governors from 2006 to 2011.  His record reflects a history of taking inflation risks seriously, a perspective forged while navigating the financial crisis. He supported aggressive crisis measures when needed, but he was also vocal about not leaving “emergency” settings in place for too long. That included long-standing skepticism toward repeated rounds of quantitative easing and heavy reliance on forward guidance.

While it is still too early to tell, the market’s working assumption is that Warsh could be open to rate cuts if growth needs support, but would also prefer a smaller Fed balance sheet over time. Reuters noted that investors see balance-sheet restraint as supportive for the dollar because it reduces liquidity in the system. In rates, the initial response also looked like a steeper curve. The front end reflected expectations that cuts may be coming, while the long end suggested less confidence that the Fed will keep long-term borrowing costs suppressed indefinitely.

This ties directly into the “debasement” narrative that helped drive the precious metals spike. When investors worry that policy will become structurally easier, whether through political pressure, renewed asset purchases or a perceived loss of central bank discipline, the dollar tends to weaken and gold tends to benefit. The Warsh nomination initially pushed back on that fear: the dollar firmed as traders priced out the risk of a much more aggressively dovish Fed chair, while gold and silver lost some of their safe-haven premium.

From here, the key watch points are straightforward: the confirmation process and Warsh’s early signaling on inflation and the balance sheet. If markets continue to read this as rate flexibility paired with balance-sheet discipline, the dollar will likely stay better supported and gold may struggle to rebuild its debasement premium, leaving prices biased lower or range-bound after the recent volatility. If the debate swings back toward concerns over Fed independence or a return to large-scale asset purchases, the debasement hedge can come back just as quickly.

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We conclude with the following hypothetical trades:¹

Case study 1: Long Copper futures

If one holds a bullish view of copper, one could consider a long position in Copper (HG) futures at the current price of $5.8505, with a stop-loss below $5.4505, a hypothetical maximum loss of 5.8505 - 5.4505 = 0.4 points. As shown in Figure 3, copper has historically tended to rally following major lows in the copper-gold ratio. Based on that relationship, copper has, in prior cycles, advanced by roughly 29% to 132% from such ratio lows. A hypothetical 20% move higher from current levels would bring prices to $7.0206 resulting in 7.0206 - 5.8505 = 1.1701 points. Each point move in the Copper futures contract is $25,000. The Micro Copper (MHG) contract is also available at 1/10 the size of the benchmark Copper futures contract.

Case study 2: Long Soybean Oil futures

If one holds a bullish view of soybean oil, one could consider taking a long position in the Soybean Oil (ZL) futures at the current price of $55.81, with a stop-loss below $48.40, a hypothetical maximum loss of 55.81 - 48.40 = 7.41 points. Looking at Figure 4, the completion of the cup and handle pattern could mean that soybean oil has the potential to rise to $69.10, resulting in 69.10 - 55.81 = 13.29 points. Each point move in the Soybean Oil futures contract is $600. The Micro Soybean Oil (MZL) futures contract is also available at 1/10 the size of the standard-sized Soybean Oil futures contract.

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¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

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