Commodities Jump on US Dollar Weakness

By: Donald_W_Dony

With the U.S. dollar drifting lower over the past four months, most commodities are feeling a strong tailwind blowing their way.

Dollar bulls were hoping for a more aggressive program of interest rate increases, but instead the Fed dialed-back the number from four to two this year. The US$ pulled away from its high of $100.60 and formed a series of lower levels.

In response to the downward sliding greenback, most commodity prices firmed-up in early 2016, and several, have broken out.

Light crude oil prices (WTIC) have moved above the 1st resistance line of $35, but still needs to advance over $38 before a breakout can occur.

Copper prices have broken out of their base and a short-term counter-trend rally to $2.40 is now expected.

Gold has followed copper with a decisive move above the $1,177 line. The yellow metal now points to $1290.

Silver still remains pinned below the $16 resistance level. The outlook is for more backfilling under the $16 level into Q2.

Bottom Line: Despite steady signs of U.S. economic resilience, the dollar hasn't flashed much of its remarkable strength of late. Central bank uncertainty appears to be holding back the dollar.

However, the short-term weakness of the U.S. dollar has brought about some much needed upside relief to many commodities.

WTI, gold and copper have been the main beneficiary of the dollar's slip.

Nevertheless, there are many positive tailwinds for the US$. Robust job reports continue to surface, annual GDP numbers remain in an upward trend and the outlook for central banks aboard are largely defensive.

We suggest using this current strength in commodities as an opportunity to reduce position size as further shakeout in natural resources lies ahead.

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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