A weaker U.S. dollar is a good thing for assets like commodities. So it shouldn’t be any surprise that commodities have been very strong over the past several months while the dollar has been weak.
Today, we look at a “weekly” chart of the US Dollar Index and highlight why how and why this trend may continue.
As you can see, the U.S. dollar has been weak since the onset of the COVID-19 pandemic. That weakness allowed the dollar to fall below its long-term rising up-trend channel in 2020 (bearish). This breakdown added fuel to the commodities rally. Lumber is up 5-fold, while grains, metals, and energy are elevated.
Looking closer at the U.S. dollar breakdown, we can see that the buck touched down near a decade-long major support/resistance line at the 89 level (blue line). It then kissed resistance at (1) before heading lower.
The 89 level is awfully important. A move below that level would be very bearish for the U.S. dollar and very bullish for commodities. Stay tuned.