Technically Speaking

US Dollar, Gold Given Closer Look

The U.S. Dollar Index is breaking out to new 2 1/2-year lows with momentum indicators remaining incredibly weak. (DTN ProphetX chart)

U.S. Dollar Index:

With overnight trade, the U.S. Dollar Index is breaking out to new 2 1/2-year lows and has given back over 75% of the entire rally from 2018 to 2020. Momentum indicators are incredibly weak with the stochastic measure of momentum in the low single digits, the lowest readings since the end of July. A weak momentum indicator like stochastics should in no way imply the U.S. Dollar Index is "overbought" but instead should speak to the strength of the downtrend. There is little in the way of natural support until the consolidation area from 88.2530 to 90.9320, which occurred from January to April 2018. We have little interest in stepping in front of this market until that area of former consolidation and would look at rallies as corrective setbacks from which to add to bearish exposure. Until strength above a corrective high of merit like 94.3020 on Nov. 4, a full bearish policy remains advised.

Bloomberg Commodity Index:

On the flip side of the bearish U.S. Dollar Index coin, the commodity indices are enjoying a strong resurgence. Last week the Bloomberg Commodity Index traded at the highest level since Feb. 21 as crude oil rallies to new highs for the move and ag commodities have added underlying support. With the higher trade last week, the Bloomberg Commodity Index has now reclaimed 61.8% of the entire 84.0 to 57.7 sell-off from earlier this year. There is only one corrective high between spot prices and the January highs, and that is the 76.7 corrective high from Feb. 19. Corn and soybeans specifically have been outperforming the larger Bloomberg Commodity Index most of this year as evidenced by dividing the BCI by the price of corn and soybeans. In general, a rising commodity index is a good sign for investment money which has certainly been pouring into the ag space in 2020. If the technical condition of this index can remain strong, it bodes well for ag and energies into 2021.

December Gold:

One commodity that hasn't been benefitting from the weaker U.S. dollar and the in-flow of speculative money of late has been gold futures. Last week and overnight, gold futures continued their downtrend, hitting the lowest spot price since early July. Depending on where one wants to call the beginning of the long-term rally, the current correction in gold is approaching the 38.2% retracement of the $1,167 to $2,089 rally. The correction isn't quite as severe if one goes all the way back to the 2015 lows around $1,045.40. Just last week, gold went through the 200-day moving average at $1,802.90, a level the spot contract hasn't traded below since March. We would look for spot prices to get a bit sticky around the consolidation period from early April to late June in the $1,666 to $1,780 area but overall maintain a downward bias in the days and weeks ahead.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.

Tregg Cronin can be reached at tmcronin31@gmail.com

Follow Tregg Cronin on Twitter @5thWave_tcronin

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