Many traders were shocked last week as the dollar rose quite swiftly. To tell you the truth, it even went a bit further than I originally expected as well.
However, the commodity market shows me that the dollar’s rally is not a new bull market but rather just a rally upward within a longer term bear market.
You see, the CRB index (which tracks a basket of commodities) has been rallying since March, just like stocks have. Both have continued their uptrends despite the dollar rally.
Since commodities are denominated in dollars, the two tend to trade opposite of each other. Therefore, I not only look to the dollar to see what it’s doing but also to the commodities market to see what it has to say about the dollar’s rally.
If commodities had a voice, it would say that this is just a rally within a larger bear market downtrend rather than the start of a new bull market in the greenback.
Why? Because the commodity uptrend is still in full force right now. Its uptrend is still intact. In fact, not only is the commodity rally intact but that rally is broadening.
Here’s what I mean by that. Formerly, things like metals were rallying (gold, copper, and silver). However, agricultural commodities weren’t rallying. Natural gas wasn’t rallying.
That’s starting to change. These other commodities are starting to rally as well. Since these other groups are starting to join the party, I believe that you will see the dollar weakness continue within the next week or two, most likely.
Oh, I know! Many out there are calling for a top in the euro and a bottom in the dollar. Here’s my main problem with that. I’ve never seen “the masses” see a top or bottom ahead of time yet. They only see it in hindsight.
However, I’ve seen them think they saw many tops or bottoms ahead of time and start trading counter to the trend too early — and lose their shirts.
Could the dollar rally a bit further before turning back down? Certainly! However, I do think that those that feel we are in a new bull market in the dollar are about to be shaken out of their trades when the trend whips back downward with a fury on them.
© 2017 Newsmax. All rights reserved.