During the two years prior to 2004, a falling U.S. dollar pushed commodity prices to the highest level in more than a decade. During the first half of this year, a rebound in the dollar has coincided with a downside correction in commodities. That may be changing. Chart 1 shows the dollar rally stalling near its 200-day moving average during May (see circle) and again during June (see red arrow), and showing signs of rolling over to the downside. On Friday morning, the announcement of a record first half account deficit pushed the dollar even lower. Right on cue, gold prices jumped nearly $7.00 and commodity-related basic material (and cyclical) stocks led Friday's market bounce. That may have to do with expectations that commodity prices are headed higher again. Chart 2 shows the CRB Index starting to find support just above its 200-day moving average. Its daily stochastic lines are in oversold territory under 20. Further weakness in the dollar -- and an upturn in the CRB -- would help commodity-related stocks.
