New Low for the Dollar and New highs for Commodities CRB Index
Commodities / CRB Index Nov 02, 2009 - 02:00 AM GMTBy: Donald_W_Dony
KEY POINTS:
• US Dollar decline continues. $0.74 target
• Upward pressure on CRB builds into Q1
• Gold’s break above $1000 signals higher numbers for all commodities
• Oil advances to next target of $88-$89
• Weak seasonal movement for NatGas
• Grains begin to strengthen with dollar decline
In the October newsletter, I indicated that commodities where being driven, not by fundamental demand (although it is slowly returning), but by the power of the falling US Dollar. The title for the October Commodities page sums the pattern up: “Dollar down, CRB up”. Natural resource demand will build after the global business cycle bottoms, which is expected in Q1. So investors who focus on raw materials need to closely watch the trading direction of the USD$. Chart 1
Heading for $0.74
The longer-term picture for the big dollar is clearly down. As currencies trade to their true fundamentals, the outlook for the foreseeable future remains bleak. To turn this ship around, interest rates would have to be higher than comparable world currencies (ie EURO, Pound, Mark and Aussie Dollar). A program of debt reduction would also need to start as well as increasing taxes. Any of these initiatives would be political suicide. They are not likely going to occur.
Models indicate that the next target for the trade-weighted index is $0.74 by year-end.
The drifting down of the dollar provides the upward energy for the CRB (Chart 1). Since March, the USD$ has declined from $0.89 to $0.75, a 15% stumble. The upward pressure of this movement has bolted the CRB to new highs. In late October, the CRB broke through the stiff 270 resistance level. This level will be now support. 300 to 310 is the target by Q1.
Probability models for the CRB (Chart 2) suggest some consolidation within the primary up trend can be anticipated this month. Monte Carlo simulation states there is only a 25% chance of the index trading in the 237 to 271 range over the next 100 days.
More research is available in the November newsletter. Go to www.technicalspeculator.com and click on member login.
Your comments are always welcomed.
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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