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US Dollar's Rise Spells the End of Commodities' Run

Commodities / CRB Index Jul 21, 2016 - 11:08 AM GMT

By: Donald_W_Dony

Commodities

A steady stream of strengthening fundamentals are driving the U.S. dollar higher. Healthier data from jobs, consumer spending and housing have put a tailwind on the greenback.

Moreover, America's economy is outperforming the weaker economies aboard. And this is setting a backdrop for improved prospects for another rate hike in the months ahead.


The impact of this renewed dollar strength is felt not just on other world currencies but on commodity prices in general.

The benchmark Commodity Research Bureau Index (CRB), after enjoying a 26 percent run in the first half of the year, is now feel stiff headwinds with the dollar's encroachment.

For example, Light crude oil, after roaring up from the sub-$30s, is now finding it difficult to hold the $50 mark. Over the last two months, WTI has given back 14 percent and appears to be heading lower.

Gold's advance is another natural resource that appears to have hit a wall.

The precious metal leaped-up almost 30 percent from $1075 to $1375 before putting the brakes on. And with the dollar's current strength, $1375 is likely the top of the rise.

At this junction, copper appears to be the lucky survivor of the dollar's rebound with a bounce to $2.30 still unfolding.

Corn and wheat prices are also falling victim to the rising U.S. dollar.

Corn is now heading lower and expected to retest the October 2014 low and wheat has just dropped to a new 5-year low.

Bottom line: With improving U.S. economics driven by favourable unemployment numbers, consumer spending and housing data, the big dollar has the wind in its sails.

This positive performance has taken some of the upward strength away from the commodity group.

And as the U.S. is expected to deliver a steady procession of healthier data over the next few months, this should spill-over to the dollar and keep most commodity prices on their backfoot.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2016 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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