Commodities Countdown

The US Dollar Breaks Out 2018-04-20

  • US Dollar breaks out
  • Commodity currencies breaks down
  • Oil stalls near $70
  • Gold miners start to outperform the metal
  • Bonds can't maintain 3% breakout

The $USD momentum (PPO) turned up over a month ago. Finally the $USD followed through on the move.

This is critical for commodities. While it might not follow through the same week, a fast moving dollar would suggest weakness in commodities. The Canadian Dollar and the Australian Dollar both broke down this week. Even the British Pound broke down this week which has a lot of commodity companies listed on the London exchange. In the video below, I point out the currency pairs. This is a very important part of the video this week.

Here is a severe move in the Australian currency.

The Crude price was flat on the week. It closed down $0.30 after trying to break through $70 all week. The momentum (PPO) is rolling over. The price of oil is $12 above the 200 daily moving average. That seems like a lot. As well, if the US Dollar is breaking out, I would expect oil to struggle to go higher. I am expecting oil to stall or fall here. We'll see if that is right.

Here is the Bullish Percent Index for energy in the center panel. With the level being so high, it is very common to see reversals in the energy stocks from this level. The $75 street is very significant friction for the XLE in the lower panel. 

The gold miners are outperforming the metal as shown on this ratio chart below. This is usually a very bullish signal to enter the gold miners. I would only recommend this trade if you are going to trade in and out. A breakaway US Dollar makes this trade much harder to see huge profits. While it is possible both GLD and GDX break out, I would be very cautious and keep stops close. This is set up for a breakout, but may reverse on the back of the Dollar. Maybe that doesn't happen, but the charts are aligning for that possibility.

I am watching Industrial Metals. They look very weak. The Shanghai Composite is very close to breaking down. Seeing the Shanghai weaken, the Aussie currency breakdown and the chart shapes on the metals, the next few weeks are critical. Look how the 10 week moving average is now resisting the price of Copper. In the lower panel is the KOL ETF. It is breaking the 2 year trend line. The Lithium and rare earth metal charts look weak. 

Lastly, the 10 year yield built a reversal candle this week, closing near the lows. Having this stall as the US Dollar breaks out suggests being very careful. If this was to denote a reversal in yields right here, that would be a timely signal for positioning. 

The video has more information, lots of sentiment data and other significant charts to watch this week. 

Good trading,
Greg Schnell, CMT, MFTA

Greg Schnell
About the author: , CMT, is a Senior Technical Analyst at specializing in intermarket and commodities analysis. Based in Calgary, he is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is also the author of Stock Charts for Dummies (Wiley, 2018). Learn More
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