The CRB Index gapped higher Thursday and following a gap higher that opened on Tuesday, which has not been filled. Thursday's gains lift the commodity index to a trendline drawn off the January and February highs and catches the high from late May. It intersected Thursday near 181.35 and the high has been a little over 181.17. This is depicted on the Great Graphic made on Bloomberg, with five- and 20-day moving averages added.
The advance is led by cocoa (5.2%), orange juice (2.2%), gasoline (1.5%) and sugar (1.45%). Thursday's 0.8% CRB rise appears to be a function of breadth, as nearly all the individual commodities are higher — except lean hogs and live cattle — even gains were modest. The 'softs' are up nearly 2% and the energy complex is up 1%.
It is widely thought that the weaker dollar boosts commodity prices because many trade and price in US dollars. However, the correlation with the dollar is not particularly robust or stable. There are, of course, different ways to measure the dollar. Looking simply for directional sensitivity, we conducted the correlations on the level of the CRB and the level of the Dollar Index. On a 60-day rolling basis, the correlation has ranged from about 0.3 to -0.55. It presently is near -0.2.
The euro-dollar is positively correlated with the CRB, though the 60-day rolling correlation dipped into negative territory twice in H2 16 and twice in H1 17. It is at 0.15 now, having ranged between 0.50 and -0.3, which as it turns out is near the correlation of the yen. The correlation between dollar-yen and the CRB has ranged between 0.5 and -0.2 over the past two years (on a 60-day rolling basis). It is not at a statistically insignificant -0.06.
The technical indicators suggest that while the CRB can advance toward the May high near 186.35, stronger gains may be difficult without consolidation/correction. The Slow Stochastic is already rolling over.
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