U.S. Dollar Stability Stalls Commodities

By: Donald_W_Dony

KEY POINTS:
• Building risk aversion supports U.S. Dollar Index and pins commodity growth
• Next major low in equities expected to lift US$ to $0.80
• CRB consolidation continues into October

• October low in gold.
• Resistance builds for oil. Minimum downside
• Copper hits 1st target. Consolidation under $3.00
• Base metal move with US$. Higher levels expected in Q4

Risk aversion in stocks is still playing a decisive role when it comes to the trading direction of commodities.

perceived weakness in stocks equals a flow of funds into the ‘safe haven’ U.S. dollar, which is negative for raw-materials prices.
Since last month’s issue, stock markets have remained fairly flat (albeit still in an upward trend since March), and the dollar has stabilized within a longer downward trend.

The Commodity Research Bureau (CRB) Index has, in response to this market action, mirrored the S&P 500 (see Chart 1). The normal intermarket stance of these three different markets is a closer parallel trading union between the broad-based S&P 500 and the US$, with commodities trending in the opposite direction to stocks.

What risk aversion will do to the normal course of the markets.

Building US$ support
Moving forward into the potentially volatile September/ October months, the probability of seeing equities under earnings pressure would spell support for the big dollar, and additional flat trading in materials. Models for the CRB Index support this expectation.
Chart 2 illustrates an anticipated rollover in September.

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

COPYRIGHT © 2009 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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