Early last month we had said that it was “Show Me” time for commodities and the $CRB Index. We laid out the laundry list of resistance that this space had in front of it, and wanted to see the battle take place before jumping to conclusions. By this point, we had already come full circle from where we were earlier in the summer when commodities had underperformed equities for 9 consecutive months. Bottoms are a process, both relative and absolute, and we can see what a little dollar destruction can do to help these guys.
John Murphy over at Stockcharts.com put both of these charts up together so we can see just how much the US Dollar impacts commodities. That July “false breakout” in the dollar has created a sharp and fast move in the opposite direction. Take a look at how well commodities have done in that environment:
“The Fed announced that it will purchase $40 billion a month in mortgage backed securities which adds to its holdings of long-term securities and ushers in another round of quantitative easing (QE3). The markets have all reacted in predictable fashion. The dollar and bond prices are falling while commodities and stocks are rising. Chart 1 shows the PowerShares Dollar Index Bullish Fund (UUP) threatening to fall below its spring lows. As is normally the case, the falling dollar is giving a strong boost to commodities. Chart 2 shows the DB Commodities Tracking Index Fund (DBC) climbing to the highest level in six months. It has also broken a down trendline extending back to May 2011. Not surprisingly, precious metals are leading the commodity charge. Economically-sensitive industrial metals are also rallying.”
Tags: $UUP $DBC $CRB $USDX