I wrote on Tuesday that strength in foreign currencies (especially commodity currencies like the Aussie and Canadian Dollars) was negative for the U.S. Dollar but positive for most commodities. One reason for that view is that stronger foreign currencies suggest growing confidence in the global economy. Another sign of growing optimism is that basic materials (which are tied to commodites) have been the strongest market sector since the market bottomed in early July. Chart 1 shows the Materials Sector SPDR (XLB) already trading at the highest level in more than four months. Its rising relative strength ratio (below chart) has been rising over the last two months which shows superior performance by the economically-sensitive group. Another reason for their superior performance since the start of July is the fact that the U.S. Dollar is weakening again. That's normally bullish for commodities and stocks tied to them.
