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FALLING DOLLAR BOOSTS COMMODITIES

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My Thursday message showed the Power Shares Dollar Index Bullish Fund (UUP) on the verge of a technical breakdown. The weekly bars in Chart 1 show the cash version of the Dollar Index. It too has a bearish look by showing the US Dollar Index threatening to fall below a "neckline" drawn under its 2012 lows. That would signal a drop in the $USD to it 2011 lows. [Thursday's message showed most of the dollar weakness coming from rising European currencies]. One asset class that would benefit from a falling dollar is commodities. That partially explains why commodities ended the week on a strong note. The weekly bars in Chart 2 show the DB Commodities Tracking Fund (DBC) climbing to a three-month high (brown circle). [The DBC includes 14 energy, metal, and agricultural commodities]. Chart 2 also shows the dollar (top of chart) and commodities trending in opposite directions over the last two years. A "neckline" is drawn on the commodity index over its 2012 highs (which matches the bearish "neckline" on the USD). Commodities are also starting to play catchup to a rising stock market and stronger economic signals. In that scenario, economically-sensitive commodities like energy and industrial metals should be the biggest gainers. Agriculturals and gold are commodity laggards.

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John Murphy
About the author: is the Chief Technical Analyst at StockCharts.com, an renowned author in the investment field and a former technical analyst for CNBC. With over 40 years of market experience, he is the author of numerous popular works including Technical Analysis of the Financial Markets and Trading with Intermarket Analysis. John's timely market commentary and expert analysis is available exclusively for StockCharts Members through his Market Message blog. Learn More
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