US Dollar Breakout: How Far Will It Run?

| November 5, 2015 | 0 Comments

inflows/outflowsUS Dollar Breakout: What Does It Mean For Hard Assets?

Something very important happened the past few days…

The US Dollar rallied above the important resistance trendline I pointed out a few weeks ago.

Here’s an updated chart…

chart of the US Dollar Breakout

As you can see, the greenback rallied strongly off technical support at $94 (red line) in mid-October.  The bullish momentum is carrying the currency above (green circle) the downtrend line (green line) from the early 2015 highs.

Without question, we have a US Dollar breakout on our hands.

What’s sending the greenback higher?

Last week’s FOMC meeting revealed the US central bank is closer to hiking interest rates sooner than many analysts and economists had expected.  Decidedly hawkish adjustments to the Fed policy statement has investors rushing into the world’s reserve currency.

According to Fed Chairwoman Janet Yellen, a rate hike may come as early as the next FOMC meeting on December 16th, 2015.

What’s this Dollar rally mean for commodities?

As you’re likely aware, the precious metals space has already had the spots knocked out of it the past few days.  Gold is down $73 an ounce (-6%) from the intraday high on the day of the FOMC announcement, while silver has plunged just over $1 (-7.5%).

Given the recent price action in precious metals, it’s not hard to figure out the impact of a rising dollar on commodities.

Here’s the deal…

Should the US Dollar continue rallying in coming months, assets like gold, silver, platinum, palladium, and crude oil will face continued opposition to higher prices.

But there is a caveat…

Should we see an unexpectedly bad economic data point this month or next, the US Dollar breakout could fail.  And as you may know, a failed breakout can cause a violent price reaction in the opposite direction.

In other words, a break below the red line in the chart above is still possible.

Here’s where it gets very interesting…

In an appearance before a House of Representatives committee yesterday, Janet Yellen said the Fed would consider negative interest rates should the US economy “deteriorate in a significant way”.

Folks, if anything’s capable of sending the US Dollar sharply lower- that’s it.

Bottom line…

Economic data over the next few weeks will give essential clues to whether the Fed will raise rates in December or not.

But no matter what the Fed has in store for us, commodity investors should be monitoring the US Dollar chart closely.

Until Next Time,

Justin Bennett

BIO:  Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.

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Category: Commodity Trading

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.