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Half of Commodities in the Red for 2022 as King Dollar Rears Head Again

By Barani Krishnan/Investing.comCommoditiesDec 07, 2022 05:43AM ET
www.investing.com/analysis/half-of-commodities-in-the-red-for-2022-as-king-dollar-rears-head-again-200633225
Half of Commodities in the Red for 2022 as King Dollar Rears Head Again
By Barani Krishnan/Investing.com   |  Dec 07, 2022 05:43AM ET
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  • 17 of 34 commodities tracked by Investing.com show annual losses
  • Slide comes as dollar rallies anew on notion Fed may turn hawkish again in 2023 
  • How much lower could the losing commodities go before the year-end?
  • How much higher could the winners climb?

With just three weeks to the end of 2022, half of the world’s prominent commodities are showing annual losses as the U.S. dollar, the currency that determines their prices, rallies anew on the notion that the Federal Reserve could be aggressive again with rate hikes in the coming year. 

Strong U.S. factory-made goods to non-manufacturing data in recent days have incentivized dollar bulls to establish new long positions in the currency against rivals like the euro and yen, putting fresh pressure on prices of raw materials that have increasingly turned from positive to negative over the past few months. 

At the time of writing, the Dollar Index was up 10.4% on the year at 105.545. The index peaked at a 2022 high of 114.745 in September, giving it a gain of as much as 20% at that time.  

Seventeen, or half, of the 34 major commodity markets tracked by Investing.com were in the red for the year. 

Those with annual losses were:

 Those in the green were:

As we prepare for 2023, a few questions remain:

Technically, how much lower could the losing commodities go before the year-end? What’s the likely bottom on the charts?  

On the other end, how much higher could the winners climb? What’s their potential resistance?

SKCharting.com, our regular collaborator on commodities charting, will attempt to help us answer these, beginning with the Dollar Index, which is expected to be the main variable for the moves across commodities over the next three weeks.

Dollar Index: Potential High and Bottom 

After losing half its value over just two months, the Dollar Index has started rebounding since the end of last week on the strength of U.S. macroeconomic data that spawned the notion of a more hawkish-than-thought Fed in 2023. 

For context, the Fed has added 375 basis points to U.S. rates since March, with four jumbo-sized 75-bp hikes between June and November. Up until last week, the expectation was for the central bank to impose a smaller increase of 50 bp at its upcoming Dec. 14 rate decision and continue tapering hikes in the new year. As of early Wednesday, the 50-bps hike was still on the cards, though traders weren’t sure how much the Fed would increase in February — the first rate adjustment due in 2023. 

The Dollar Index’s chart shows a recovery from Monday’s session low of 104.065 to reach 105.765 by early Wednesday.

U.S. Dollar Index Daily Chart
U.S. Dollar Index Daily Chart

SKCharting’s observations show that the index’s 50-week Exponential Moving Average, or EMA, of 104.50 and oversold weekly stochastics warrant a bounce back. 

“The rebound can extend further to the 5-week EMA of 106.30 if the 105 level holds strong,” it said.

Commodity Losers: Potential Bottom and High

In order to keep to the main commodities or those with the biggest losses, our focus will be on WTI crude, spot gold, U.S. copper futures and U.S. coffee futures:

Crude Oil Futures Weekly Chart
Crude Oil Futures Weekly Chart

WTI (-0.9%): U.S. crude continues to hover at a low altitude, in close proximity to what may prove to be a short-term bottom. It is likely to explore the 200-month Simple Moving Average, or SMA, of $72.55 and the 50-Month EMA of $71.20.

A rebound from the support zone is likely to meet immediate resistance levels of the 100-Week SMA of 481.86 followed by the Weekly Middle Bollinger Band of $86.20

XAU/USD Weekly Chart
XAU/USD Weekly Chart

Spot gold (-3.0%): Bullion is seen consolidating below the 100-week SMA of $1,800 and above the 5-week EMA of $1,760. The bullish trend will likely remain, so long as prices hold above $1,760.

Sustainability above $1,777 may be an initial signal for the resumption of an up move towards $1,800, with $1810 and $1825 as next immediate targets.

Copper Futures Weekly Chart
Copper Futures Weekly Chart

U.S. copper (-12.77%): Action indicates a bottom between $3.50 and $3.30 per lb.

Beyond that, the bullish trend appears intact for copper with its Relative Strength Index at 52 above neutrality and stochastics at 76/71, favoring positivity. Copper’s uptrend also remains supported by the 5-week EMA at $3.74 and the weekly middle Bollinger Band at $3.58. Challenges to overcome remain the 50-week EMA of $3.86, followed the by 100-week SMA of $4.08.

U.S. Coffee Futures Weekly Chart
U.S. Coffee Futures Weekly Chart

U.S. coffee (-27.44%): The market has been reeling under bearish pressure for a  fairly long time. As long as prices sustain below the 50-month EMA of $1.6740 an lb and the 5-week EMA of $1.65, coffee may continue with a bias skewed downward towards the 200-week SMA of $1.4980.

Weekly RSI at 35 is below neutrality while weekly stochastics at 15/13 has a lazy look up.

Commodity Winners - Potential High and Bottom

Our focus here is on two of the biggest winners in commodities: natural gas and orange juice.

Natural Gas Futures Weekly Chart
Natural Gas Futures Weekly Chart

Natural Gas (+50.08%): The heating fuel was left with a runaway gap when prices dropped below $6.22 the previous week. While current bearish pressure looks set to retest the 100-week SMA of $5.11, the recovery is more about filling the runaway gap at $6.22 and retesting the 50-week EMA of $6.38.

Orange Juice Futures Weekly Chart
Orange Juice Futures Weekly Chart

Orange juice (+42.39%): The short and mid term price outlook remains bullish with strong positioning of weekly RSI at 61 and Weekly stochastics at 66/65. Gains may extend to $2.23 per lb, which would require a hold above $1.94. If that support gives way, then the correction could extend towards $1.87 and $1.72.

* All charts by SKCharting.com, with data powered by Investing.com.

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about. 

Half of Commodities in the Red for 2022 as King Dollar Rears Head Again
 

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Half of Commodities in the Red for 2022 as King Dollar Rears Head Again

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Comments (6)
Nani Reddy
Nani Reddy Dec 08, 2022 3:27PM ET
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Respected Sir, I have been reading your articles every now and then and your analysis are perfect, it does match according to the trend. I generally play using on price action , I have been waiting to see a bounce on crude as the current price are at a strong support line . I expecting ot will test 75 again as it did for two days or 77 in a day . so what's your thought.
Mayur Sawant
Mayur Sawant Dec 07, 2022 9:41AM ET
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good luck with your analysis ill give you 0/10
Barani Krishnan
Barani Krishnan Dec 07, 2022 9:41AM ET
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You're just a dollar bear. LOL. I don't trade, I don't take any positions. I just tell the story based on what the charts are telling. This is just a year-end round-up of winners and losers and potential highs and lows -- nothing more, nothing less.
Phong Nguyen
Phong Nguyen Dec 07, 2022 9:41AM ET
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Barani Krishnan don’t listen to little sour grape. Keep up the good work ! Let us know your prediction once in awhile, ok ! Thx
Barani Krishnan
Barani Krishnan Dec 07, 2022 9:41AM ET
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Phong Nguyen  Much appreciated. Natgas coming up tomorrow.
Mayur Sawant
Mayur Sawant Dec 07, 2022 9:41AM ET
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this analyst is a scam just report him all equity and commodities are bullish only your brain is bearish
Barani Krishnan
Barani Krishnan Dec 07, 2022 9:41AM ET
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You obviously missed the memo: To put things in perspective, the contents in this story were directionally and thematically correct at the time of publication. What has happened over the past few hours, in Asian trading that is, is that China announced a big shift away from Covid controls and that's boosted sentiment in commodities across the board and partly led to a weakening of the dollar. The annual losses and gains still hold on all the commodities cited here.
Barani Krishnan
Barani Krishnan Dec 07, 2022 9:41AM ET
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Mayur Sawant, all equity and commodity bullish, eh? Dow up a piddly 0.2%, SP, NQ in the negative. Brent crude just turned negative. Gold has given back half of earlier rise. I'd suggest that the bullishness is only happening in your brain.
SunilKumar Dixit
SunilKumarDixit Dec 07, 2022 9:41AM ET
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Mayur Sawant. Usually we do not despise criticism so long as the criticism is in true sense of the term. While we welcome readers feedback including differences of opinion, a level of professionalism with aesthetics is equally appreciated. The author always does his best writing on the subject presenting elaborate details of what's going on in the markets. I hope you, as a reader, will maintain some standards.
Barani Krishnan
Barani Krishnan Dec 07, 2022 9:02AM ET
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Readers: To put things in perspective, the contents in this story were directionally and thematically correct at the time of publication. What has happened over the past few hours, in Asian trading that is, is that China announced a big shift away from Covid controls and that's boosted sentiment in commodities across the board and partly led to a weakening of the dollar. The annual losses and gains still hold on all the commodities cited here.
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Robert Flores
Robert Flores Dec 07, 2022 9:02AM ET
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Barani Krishnan
Barani Krishnan Dec 07, 2022 9:02AM ET
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Robert Flores  Thanks much, sir. Truly appreciate objective-minded readers like you. Yes, the DIX is a sneaky fellow, ready to spring a surprise anytime. Anyway, the BoC's 50 bps hike and adequately hawkish language seems to have given some tail-wind to USD. Thanks again and bests.
Barani Krishnan
Barani Krishnan Dec 07, 2022 9:02AM ET
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Robert Flores  Yes DXY or DIX (I sometimes call it that too :)
Robert Flores
Robert Flores Dec 07, 2022 9:02AM ET
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Barani Krishnan im looking forward for your next analysis on Natty
Barani Krishnan
Barani Krishnan Dec 07, 2022 9:02AM ET
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Robert Flores  Coming up tonight, sir, natty (or nutty, given today's context :)
Abdelraziq Abuaisha
Abdelraziq Abuaisha Dec 07, 2022 7:01AM ET
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Your paperic king has fallen from 112.30 to 104.60, that means it has incurred 7.3% loss in one month, since begging of the week it has gained around 1%, if this what you are calling ‘rears head’ then I would tell: your title is unrealistic. Besides your paperic king’s main issue is the Golden Metal, whic has been showing in the same period a force that cannot be countered. In the last five releases of CPI your paperic king has burned 4 out of 5, at October release -last month- it has incurred its biggest fourth weekly loss since the beginning of floating monetary system. Facts speak louder than Illusion dear writer :)
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Abdelraziq Abuaisha
Abdelraziq Abuaisha Dec 07, 2022 7:01AM ET
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When you want to call something a ‘King’ it has to perform like a one, that’s the point :).
Barani Krishnan
Barani Krishnan Dec 07, 2022 7:01AM ET
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The point is that the year is ending and we're pointing out the winners and losers as the end of 2023 approaches with the question of what their lows and highs could be before that happens.
Barani Krishnan
Barani Krishnan Dec 07, 2022 7:01AM ET
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Abdelraziq: Are you aware that oil lost 7% in two days, gold dropped some $30 in a day and commodities are down almost across the board the past two days as the dollar turned around? The dollar doesn't have to jump 5% to qualify for the expression of rearing its head. The mere fear of it coupling with adverse Fed action is enough to create a queasy feeling for the trade and that's exactly what's going on here. Definition in of "rear one's head: "To appear and cause problems or stress, especially at an inopportune time." Isn't that what's going on here? To me, King Dollar as an expression is valid because of DX's influence; yes, it has lost about 7% in a month but it still has much ability to rally on a whim. The facts show the path of least resistance has typically been lower for gold this year versus the dollar. The facts do speak for themselves here, rather than illusion.
Salim SRH
Salim SRH Dec 07, 2022 7:01AM ET
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Barani Krishnan nice sirji your answer superb
Barani Krishnan
Barani Krishnan Dec 07, 2022 7:01AM ET
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Salim SRH  Thanks Salim. Just trying to be objective on the market. I'm not a cheerleader for gold or any other commodity.  At the same, I'm aware of the vital importance of raw materials to the economy. I work with Sunil to try and produce balanced calls, that's all.
Jay Means
Jay Means Dec 07, 2022 6:57AM ET
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