The Greenback has been on a tear since the April 17 low, rallying over 9% and creating a negative headwind across the commodity complex. While we were anticipating a top in mid July @ the 95 level, prices broke out above that major resistance level, driven by EM currency turmoil and continued trade war fears.
Today however we are seeing signals that it is time to retrace some of these gains, which should provide a tailwind to commodities.
- Today price has given a confirmed bearish close below the uptrending 23day adaptive channel. During this sprint higher, prices only dipped intra day below this channel, or immediately reversed back above in following 2 days. Given the NAFTA signing today, and selloff in the Greenback we imagine that a bi lateral deal with Canada will be next and the dollar will continue to soften.
- The breakout above 95 has failed and almost all of Augusts' gain have now been retraced. We only need another 50 cents lower by Friday to confirm the bearish reversal which we can see as a Shooting Star reversal candle on the monthly chart.
3 - This weeks Traders in Financial Futures report caught our eye.
Not only are Asset Managers at a extreme 100% score on 18month net position, but their longs score 100%, while shorts are at 99% - So they are Max long USD. We've seen net position ratings greater than 95% seventy eight times going back to 2006, and price distribution 20 days forward offer 3:4 odds in bears favor compared to 1:1 baseline odds - So significant statistical under-performance given this condition.
Numerous indicators and data points are projecting dollar weakness in the weeks ahead - We believe commodities will benefit, and we are already seeing signs of this in nascent rallies in Palladium/Gold/Coffee/Cocoa and others. Beans/Silver/Cotton are also projecting bottoming formations.
Extreme participant positioning at inflection points should add velocity as the technicals continue to turn neutral, and then positive.