Commodity Bullishness

Published on: 11:09AM Aug 06, 2009

The chart of the week is the US dollar index and corn prices. The US dollar index measures the performance of the US dollar value versus a basket of other currencies including the Euro, Yen and Canadian Dollar. After peaking in March the value of the US dollar index has fallen roughly 13%. That’s enough to warrant press in itself but what’s increased our attention is the dollar’s recent move through a key chart support level suggesting that another downward leg in the market may be in the works. Charts suggest that the dollar could fall all the way back to its summer 2008 lows which would be about another 8% decline. Why is this important to commodity buyers and sellers? A lower US dollar value basically makes our products less expensive in overseas’ markets and makes international products more expensive at home. Thus, a deflated dollar is bullish for exports, bearish for imports, and bullish for US commodity prices. The chart below depicts the inverse correlation (82% for those keeping score) between the dollar and US corn prices. Similar charts could be constructed for numerous commodities. And even if a particular commodity market is not export/import sensitive, chances are that market will be bullishly impacted by a bull run in corn.


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