I remember sharing a funnel topping formation of the dollar with a friend which reached its highest peak after Trump’s election. Ever since then, the dollar has been falling. One would have expected commodities to rally, for instance the inversely correlated major commodities like Crude and Gold to rally. In fact, the gold rally that began at the end of 2016 halted and price entered into a range from the beginning of February 2017, trading between 1190-1295 an ounce. On the other hand, crude fell into a steep downtrend but has never broken its support that was established on the 2nd quarter of 2016 at 40 dollars per barrel. Copper seems to be the only commodity that immediately begun to rally following the weakening of the dollar.
U.S Inflation has remained relatively flat and despite several interest rate hikes by the Fed, the dollar just shrugged the hikes and the short-lived rallies offered an opportunity to continue shorting the dollar. Despite the fact that the Fed’s 2% inflation target fell short of being hit it tried to hike interest rates.
Commodity prices have remained relatively low. I cannot purport to be a macro guy in fact my views might border Charlatanism but according to me, commodity prices are the best indicators of whether there is inflation. My assumption is, if they are not rising then people are not spending. Besides, looking at the consumer price index it has remained relatively flat/unchanged since the beginning of this year. One can’t also help noticing how the Fed has gone quiet on the issue of a further rate Hike.
Technically speaking, here’s what I See:
Gold- an inverted Head and Shoulder pattern. If you switch to the weekly chart you’ll also have a clear view of the descending triangle that price has currently broken out of.
Oil- An inverted Head and shoulder pattern that is yet to be fully resolved. This pattern has morphed into a rectangle pattern indicating overall market neutrality but I still hold my conviction because the Head and shoulder has not failed to the extent of being discounted. Furthermore, any experienced technical analyst knows that patterns DO NOT appear or resolve as per their favorite Textbook case examples. Also on the look-out on this chart is a Descending triangle. If this is resolved then it will invalidate my Bullish outlook on Crude Oil.
Copper-An inverted Head & Shoulder pattern that has been resolved. Copper seems to have been the first major commodity to rally as the dollar started declining.
AUDCHF-Ascending Triangle
CADJPY-inverted Head & Shoulder (price currently breaking out)
CADCHF–inverted Head & Shoulder. Pattern morphed into an ascending triangle which price has broken out.
