Technical Analysis: Three Charts You Have To See…

| June 14, 2013 | 0 Comments

US Dollar vs CommoditiesSome unusual developments are occurring in the marketplace right now.   Not only are we seeing some extraordinary trading in currency markets, but a long-standing relationship between the Dollar and commodities has recently changed.

Take a look at this updated chart of the US Dollar index…

US Dollar

As you can see, the Greenback continued its break down from last week.  Since mid-May, the US Dollar index has given up 3.5%.  That’s a rather startling shift considering the extreme strength of the currency in early May.

As I mentioned last Friday, this new bout of Dollar weakness can be attributed to a spectacular rise in the Japanese Yen and the Euro.  Stunning developments in Japan are making anyone short the Yen in a world of hurt.

But notice how the Greenback is currently holding the 200-day moving average (dma). 

If this area of technical support holds, we’ll likely see the Dollar bounce up to the $82.50 area.  But while the odds of a near-term bounce are high, the currency won’t likely be able to achieve the May highs at $84 anytime soon.

On the other hand, if the 200-dma technical support doesn’t hold, the Dollar index will likely collapse to $79.  As you may remember, this was the technical support area that sent the Greenback galloping higher in February 2013.

But here’s what’s really interesting…

The relationship between the Dollar and certain commodities has changed… at least temporarily.

As I’ve said many times in the past, commodities and the US Dollar usually trade with an inverse correlation- when the Greenback falls, commodities generally rise.

Oddly, that hasn’t been the case in recent trading.  Take a look at the recent trading action of two heavily traded commodities- gold and oil.



As you can see, neither commodity rose to the same degree that the Dollar fell.

In fact, WTI crude is only up slightly in recent trading while gold actually fell along with the Dollar.

While it’s certainly unusual, it’s not the first time this has happened…

At various times in the past, the inverse correlation between commodities and the Greenback has reversed.  For whatever reason, hard assets fell (or rallied) right along with the Dollar.

However, these past switches in Dollar/commodity polarity didn’t last long.  Within a few months, the inverse trading correlation reasserted itself… with no exceptions.

While it may seem alarming to investors that important commodities aren’t rising while the Dollar sinks, this rare phenomenon won’t last long.  In fact, I’m betting the falling Dollar/rising commodity trend will reassert itself soon.

Stay tuned to Commodity Trading Research for continued analysis on the relationship between the US Dollar and commodities.  And more importantly, how you can profit from it!

Until Next Time,

Justin Bennett

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Category: Technical Analysis

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.