A Forex View From Afar

Dollar and Equity Boost Oil, Wheat and Corn drop hard

Despite the strong gains posted this year, commodities have started slowly to move lower, erasing a lot of the increases made in the last months. Oil dropped more than 20% from the high made in July, Minnesota wheat dropped an amazing 60% since the top was reached in March, while corn is off by almost 30%. The medium and long-term effect of this sustained selling will be seen in the inflation read later this year, when out of nowhere inflationist pressures will drop. Furthermore, companies and ultimately consumers will see and feel these lower prices in their pockets and read the effects in the earnings report.

It is not clear what exactly dragged commodities lower: a supply and demand problem, the strength of the dollar lately or speculators closing long orders that have earned their keep over the last eighteen months. It is pretty clear that the equity markets have enjoyed this power selling, and seems to have helped the market to find a near-term bottom.

The fundamentals have aligned for some sustainable equity and dollar buying it would seem, and all that may be required is for traders to get back from vacation and start to build a trend. The dollar index just broke the 200 day SMA area, and now has a real test if it is to hold it. Oil and gold are doing their part, and it looks as though the speculators have moved from Corn, Wheat, and Metal towards (dare we say it out loud).....equities. Forget the headlines, the charts are reflecting a near-term swing change. The S&P and the dollar index now have to do whatever it is that they need to do, including holding huge near-term resistance areas that are being challenged.

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