Thursday Commodities & Currencies
Neither the US Dollar nor the Euro crossed their 39-week moving averages (MA) since last week. The US Dollar is close below its average and the Euro is close above. The US Dollar is important to watch because a break above for the US Dollar would help confirm that its recent price action is a consolidation in advance of a move higher. It would also help confirm the recent positive trend in the relative strength of US equities vs. foreign equities, and therefore indicate investors might favor investment in domestic equities vs. foreign. In addition, a break above for the US Dollar would help indicate that short-term interest rates will remain firm and that perhaps Fed easing is less likely. Most importantly, a break above for the US Dollar would signal a limit, at least in the short-term, to the increases in prices of precious metals and commodities in general.
Industrial metals remain well above the MA and have broken slightly above short-term resistance with the all-time high as the next resistance. In addition, the current chart strength is supported by the RSI which has remained in a very strong bull range, and the MACD which has corrected to a supportive level and may cross over soon (weekly MACD signals are often reliable). Industrial metals (copper, aluminum) are important to watch. They can indicate underlying industrial strength, and (or) they can be a leading indicator of commodity inflation, dollar weakness, and the direction of interest rates.
Agricultural prices have been surging recently breaking to new highs. During the commodity boom of the past two years, agriculture was a weak spot. Now it looks like it is joining the other areas of the market and confirming the uptrend. Droughts in Australia and the western United States are contributing heavily to the increases, but the world wide trends of high demand from awakening emerging markets, low rates and underlying currency weakness are impacting agriculture the same as other commodities.
Commodity Related Equities prices have also been strong lately, including Energy related shares. (This depends on the commodity related equity index such as Morgan Stanley vs Goldman Sachs. They have different weightings, particularly for energy.) The shares usually lead the commodity so the equity index works as a leading indicator for the direction of commodities (and the dollar).
Gold is one of the only important commodities missing from the overall pattern, and will be important to watch. Gold usually is the leader of the pack so it is odd that it is lagging while other commodities are leading, and therefore it will be important to watch whether it eventually confirms the trend.
***All charts and comments are intended for educational and discussion purposes only. No investment recommendations are being offered.***
