It was a good week for commodities and an even better week for stocks. But it all started with the dollar. We explained earlier in the week that the Dollar Index (UUP) appeared to be in a bearish consolidation pattern within a major downtrend. That view favored a lower greenback and higher foreign currencies (along with higher commodities). Chart 1 shows the UUP ending the week on the downside. Dollar selling came just in time for commodities. Chart 2 shows the DB Commodities Tracking Fund (DBC) bouncing off its 200-day moving average from an oversold condition. The commodity gains would have looked even better except for heavy selling of grains on Thursday on a report of a near record corn crop. The best commodity performers were base metals like copper. Chart 3 shows copper hitting a new two-month high. Base metals are probably the most economically-sensitive commodities. As a result, their rally this week shows more optimism on the global economy and stocks.
