The US Dollar Is Very Destructive For Commodities
The US dollar created havoc in the markets last week. Investors went in ‘risk-off’ mode and stocks were hit hard, but commodities were hit much harder. The commodities sell-off also created turbulence among stocks. In the meantime, the US dollar has been hitting the top of its 2022 rising channel, a point that might come with a little bit of relief, although it looks like there is a slightly higher target that the US dollar is working towards.
Last month, we wrote the article, "Will Commodities Be Hit By A Strong U.S. Dollar," and we concluded:
"The US dollar created serious resistance around 109 points in the second week of July for reasons explained in great detail in our research (shared in multiple Momentum Investing alerts back in June/July).
"If anything, the US dollar trend in recent months clearly invalidated the idea of a lasting and broad-based commodities rally. We are most likely entering a bifurcated commodities trend. We expect the commodities universe to exhibit bullish, bearish, and neutral trends."
Indeed, we challenged the idea of a super trend in commodities. A few months ago, many investors and analysts thought that they were hitting a mega trend in commodities. We thoroughly disagreed.
We were very specific in the price points to watch. In the mentioned article, as well as in "The US Dollar Could Be Printing a Major Reversal," we pointed out that 107.7-109.2 was the key zone to watch. Both articles were published back in June.
It took the market until Sept. 21 to clear that level. In the last few trading days of the past week, we saw a breakout in the US dollar, clearing the 107.7-109.2 zone for three consecutive days. It looks like the US dollar might be hitting some resistance in the short-term.
However, the long-term chart is strongly bullish, and it suggests that 118 to 119 is the next target.
Most commodities will continue to suffer. However, there might be a select few that will recover, and we believe silver will be one of them. Obviously, the leader in the commodities space remains lithium, as demonstrated in "Australia Looks Good, But ‘Big Lithium’ In Australia Looks Astonishing."
Until the US dollar reaches its next target, we would recommend being very cautious with commodities and only focus on the ones that have a bright future, i.e., green battery metals. Certainly stay away from traditional energy investing.
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