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Decline of the US Dollar Means Commodities Will Continue To RoarThe pound sterling, the United Kingdom’s foreign currency instrument, was the global reserve currency in the 19th century and the first half of the 20th century. For decades, the US dollar has been the world’s reserve currency, which became official in 1944 after a delegation from forty-four allied countries decided that the world’s currencies would no longer be linked to gold but pegged to the US dollar, which was linked to gold. The Bretton Woods Agreement established the authority of central banks to maintain fixed exchange rates between their foreign exchange instruments and the US dollar. In turn, the US would redeem US dollars for gold on demand. The redemption option ended in 1971 when President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value. The dollar’s link to commodities Three factors that will continue to weigh on the dollar’s global role Expect higher base prices for commodities Long-term trends are very bullish Buying dips is likely to be the optimal approach For seventy-eight years, since the end of World War II, the US dollar has been the king of the currencies. On December 27, 1945, the participating countries signed the Bretton Woods Agreement. On August 15, 1971, President Nixon abandoned the gold standard. On February 4, 2022, a handshake on a “no-limits” support agreement between Chinese President Xi and Russian President Putin may go down in history as the beginning of the end of the US dollar as the leading world reserve currency. The watershed event could have far-reaching consequences for markets across all asset classes. Commodities are global assets. The end of the dollar’s reign as the monarch of money will likely lift raw material prices in dollar terms in the coming years. The dollar’s link to commodities As the world’s reserve currency, the dollar has been the leading global pricing mechanism for most commodities. Over the past decades, a rising dollar often weighed on commodity prices as the essentials became more expensive in other currency terms. A weak dollar encouraged buying as prices fell in different foreign exchange instruments. While the US is the world’s leading economy, the population at around 333 million is only 4.2% of the total number of people on our planet. Therefore, the dollar’s link to commodities is financially based on the US position in the global financial markets and not on the supply and demand equations for the raw materials. If the dollar’s role in the world declines, its link to commodity prices will diminish. Three factors that will continue to weigh on the dollar’s global role King dollar is facing a challenge in 2022 as world economic and political events threaten its dominance. The US dollar faces at least three issues that continue to erode its purchasing power and role in the global economy: Inflation - The February US CPI and PPI data pointed to the highest inflation in over four decades. The March data will be even worse. The Fed began increasing short-term interest rates but remains far behind the inflationary curve. Rising inflation erodes the US dollar’s purchasing power. Geopolitical tensions - The war in Ukraine and China’s support for Russia has dramatically changed the geopolitical landscape. In the leadup to the expansionary move, Russia reduced its US dollar reserves, increasing holdings in euros and gold. Sanctions on Russia will likely cause China to follow the same course. China is the world’s second-leading economy, and Russia is a leading commodity-producing country. As China and Russia move away from using the US currency as a reserve currency, the dollar’s global role will decline. Geopolitical tensions have accelerated the descent. The decline of fiat currencies - The rise of cryptocurrencies is a sign of the fall of fiat currencies. Cryptos derive value from bids and offers for the currencies in an open and transparent market that transcends borders. Fiat currencies derive value from the full faith and credit in the governments that issue the legal tender. Meanwhile, rising commodity prices signify the decline in the dollar’s purchasing power. The dollar index measures the US currency against other world currencies, but it is a bit of a mirage as when all fiat currencies lose value, it is not apparent. The dollar index measures the US currency against other world reserve currencies, including the euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc. The most significant weighting, at 57.6%, is against the euro currency. The dollar may be moving higher against the basket of currencies, but that does not mean that all of them, including the dollar, are losing value. Expect higher base prices for commodities The decline of the dollar and all fiat currencies makes purchasing power drop and commodity prices rise. Therefore, a strong dollar index has not weighed on many commodity prices over the past year. The weekly chart shows that the dollar index has rallied, making higher lows and higher highs since early 2021. Over that period, most commodities have risen to multi-year and all-time highs. The strength of the dollar did nothing to restrain increasing raw material prices. Meanwhile, higher US interest rates increase the cost of carrying commodity inventories and boost the US dollar’s value against other currencies. The weekly chart of the US 30-Year Treasury bond futures shows the pattern of lower highs and lower lows, pushing long-term interest rates higher. The bottom line is that a rising dollar and increasing US interest rates have not stopped commodity prices from rallying since early 2021. Higher interest rates, rising inflation, geopolitical turmoil leading to supply chain issues, and sanctions that interfere with many raw materials supply and demand equations mean that production costs are rising. The base prices for raw materials are moving higher. Long-term trends are very bullish Bull markets rarely move in straight lines, and since commodities are highly volatile assets, corrections can be brutal. However, the long-term charts in four leading commodities, copper, crude oil, corn, and gold, display the same bullish patterns. The quarterly chart of COMEX copper futures shows the bullish pattern over the past two decades. The highly political crude oil market displays the path of least resistance of the price is higher. US energy policy and geopolitical turmoil have only exacerbated the upward trajectory of the energy commodity since April 2020. Corn’s price path has been higher, making higher highs and higher lows for decades. Gold’s bull market dates back over two decades. Gold may be the best example of the decline in fiat currency values as it is a hybrid between a commodity and a foreign exchange instrument. Many other commodities display the same long-term trends. The recent strength in the US dollar means that commodity prices in other currencies have followed even more bullish price paths over the past year. Buying dips is likely to be the optimal approach The trend is always your best friend in markets. While short-term and medium-term traders follow technicals that depend on the market’s sentiment, long-term trends are a function of macro and microeconomic factors. The decline of fiat currency values continues to push commodity prices higher. Over the past decades, price corrections have been long-term buying opportunities in the commodities asset class. The economic and geopolitical landscapes point to a continuation of the trend. Buying on price weakness has offered optimal results. Even if the US dollar index continues to rise, it will not mean the currency is strong. The foreign exchange market is a mirage that only measures one fiat currency’s value against another. Commodity prices are the actual value indicator, and the long-term trends reveal that currencies are all losing purchasing power. We remain bullish on commodities. However, the higher the prices, the more vicious the corrections will become. Buying when they look the worse could be the best course of action over the coming months and years. -- Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility , inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
CBOT:AW1!Long
by Andy_Hecht
Open Jaws -Crude Palm Oil (CPO) vs Palm Oil ProducerI'm looking at daily chart of the price action in Golden Agri Resources E5H vs it's main product Palm Oil over a 5 year time period. Golden Agri looks to me to be one of the major producers of palm oil, and I'm pretty sure that most people have never even heard of them. To me this looks like an open jaw setup, and I believe those jaws will close. Palm oil is one of those things that takes a lot of time to add new supply. You can't just print mature palm trees. Note that this is a thinly traded low liquidity pink sheet ADR stock or listed on the SGX. Caveat Emptor. This is not investment and/or financial advice, and I am not a financial advisor or advisor of any kind. No-one should listen to anything I say, ever. I am long Golden Agri Resources and adding more to my position.
CLong
by panem_et_circensus
Seasonality In Commodities As The Spring of 2022 ApproachesCommodities can be seasonal assets. Fuel and nutritional requirements tend to reflect the weather conditions during the times of the year that are cold and when the weather warms. As February ends and March arrives this week, the old saying that March comes in like a lion and goes out like a lamb. The oldest written reference to the “lion/lamb” proverb comes from English author Thomas Fuller, who included it in a 1732 volume of proverbs, “wise sentences, and witty sayings, ancient and modern.” It then passed to many farmer’s almanacs, but the saying is likely much older than the 18th-century reference. The end of winter- Heating fuel demand declines The beginning of spring- The driving season in gasoline and injection season in natural gas The start of the 2022 crop year The 2022 grilling season is on the horizon The three reasons 2022 may not be a typical year for seasonality As the weather warms over the coming weeks, the supply/demand equations for a host of commodities will shift. While seasonality offers opportunities to traders and speculators in the futures markets, prices tend to adjust far before the seasons change each year. Moreover, in 2022, the economic and geopolitical landscapes suggest that traditional seasonality could go out the window. The end of winter- Heating fuel demand declines In a typical year, the end of the winter season is when futures markets are already reflecting spring pricing. As March begins this week, refiners tend to produce less heating oil, and the natural gas demand remains high, but the markets see the light at the end of the peak-season tunnel. A monthly chart of the heating oil crack spread, a proxy for other distillates, including diesel and jet fuels, often weakens in March. While distillates are year-round fuels, heating oil production usually declines in March anticipating a decline in heating oil demand. Historically, natural gas tends to reflect the prospects for milder weather during the spring months in March. Natural gas reached annual lows in February, March, and April in 2012, 2016, 2017, and 2021. The beginning of spring- The driving season in gasoline and injection season in natural gas The spring and summer seasons are when people tend to put more mileage on their cars as the weather improves. Gasoline demand tends to increase at the end of the winter as refiners shift from distillate to gasoline refining. The monthly chart shows that gasoline processing spreads often move higher and peak during the spring and early summer months. Each year, the natural gas market moves from the withdrawal to the injection season during March. As production begins to flow into storage across the US, the supply-demand equation shifts, and prices tend to decline. In June 2020, natural gas fell to the lowest price in twenty-five years at $1.432 per MMBtu at the end of the second quarter. The start of the 2022 crop year As the snow melts across the fertile US plains and other crop-producing countries in the northern hemisphere, farmers begin to plant the new crops in March and April. The early spring marks the time when uncertainty about supplies peaks as the weather during the growing season is the primary factor in crop production each year. Grain and oilseed prices tend to rise during the spring and early summer as Mother Nature determines the weather conditions that determine the agricultural products that feed the world. The monthly chart of CBOT soybean futures shows that prices often move to annual highs during the spring and summer months. Uncertainty over the corn crop often pushes prices to highs during the spring and summer each year. Wheat prices display the same seasonal pattern. Wheat is the primary ingredient in bread, a critical source of nutrition for nearly eight billion people. The beginning of the crop season is when supply concerns start to increase as prices become as fickle as the weather over the coming months. The fear of drought or floods is always a key concern as the seeds go into the ground. The 2022 grilling season is on the horizon Each year, the US grilling season lasts from late May and the Memorial Day weekend through early September and the Labor Day weekend. As barbecues come out of storage across the US and family and friends gather outside, the demand for animal protein tends to rise. Futures markets tend to move higher as animal protein producers deliver cattle and hogs to processing plants in the spring to meet the increased summer requirements. Cattle and hog futures prices tend to move higher as the grilling season approaches and hit seasonal lows as it ends. Live cattle futures often display seasonal strength in the spring and summer and weakness during the fall and winter months. The monthly chart shows that feeder cattle futures tend to display seasonal strength during the grilling season. Lean hog futures display the same seasonal trading pattern in many years. The three reasons 2022 may not be a typical year for seasonality While seasonality is a critical factor for energy and agricultural commodities, 2022 is anything but an ordinary year in markets across all asset classes. At least three factors could cause markets to exacerbate or ignore seasonality over the coming months: Inflation is at the highest level in over four decades, causing prices of all goods and services to rise. Commodity prices continue to trend higher, despite the Fed’s plans to increase interest rates. The central bank remains far behind the inflationary curve, which is likely to continue the bullish trend. Russia is a leading commodity producer, supplying Europe and the world with metals, minerals, energy, and agricultural products. The Russian invasion into Ukraine led to significant sanctions, which could cause embargos, and supply chain bottlenecks, causing price distortions as availabilities decline. Markets reflect the economic and geopolitical landscapes. We have not experienced the current level of uncertainty in decades. The technical trend in most commodity markets remain higher, and the trends are always your best friends. Seasonality is likely to take a backseat in the current landscape. Market participants should expect the unexpected over the coming weeks and months as price variance is likely to remain elevated. Approach all markets with a clear plan for risk and rewards and stick to that plan. Never allow a short-term risk position to become a long-term investment because the price moves contrary to expectations. Seasonal factors are always critical in all raw material markets, but in 2022, inflation and geopolitical tensions are trumping the weather as the winter comes to an end. -- Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
NYMEX:NG1!Education
by Andy_Hecht
2
Coffee JO nice VCP Triangle breakoutsSome nice VCP / Saucer Handle patterns on JO as it continues to climb higher. Watch for a break higher if it can chew through 67 zone resistance Break lower out of triangle / trendline support invalidates long idea. On a macro level we're seeing bullish setups in AG complex (coffee , rice, wheat, corn, soybeans, etc.) , coupled with inflation coffee should run. Personally I've noticed my local coffee shops also charging $1 per cold brew which supports the bull case.
JLong
by FriscoTrades
Is Bunge Breaking Out?The rise of inflation has investors quietly returning to many commodity-related stocks that were popular 2003-2007. One of them is Bunge. Earlier this month, the soybean processor touched its highest level in over 13 years. It pulled back but is trying to stabilize around the same $92 area where it peaked last May. Is old resistance new support? BG is also near its 50-day simple moving average. Next, notice how the stock rallied after its last three earnings reports. (Each beat estimates on the top and bottom lines.) Third, something of a rotation seems to be taking place because other similar names like Archer Daniels Midland, Mosaic , CF Industries and Deere are also above their 50-day moving averages. (Unlike the S&P 500.) Overall, it’s been a tough start to the year for most major stocks. But certain corners of the market have held up better. Traders may start focusing on the emerging relative strength in agriculture-related names like BG. TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more. Important Information TradingView is not affiliated with TradeStation Securities Inc. or its affiliates. TradeStation Securities, Inc., TradeStation Crypto, Inc., and TradeStation Technologies, Inc. are each wholly owned subsidiaries of TradeStation Group, Inc., all operating, and providing products and services, under the TradeStation brand and trademark. When applying for, or purchasing, accounts, subscriptions, products and services, it is important that you know which company you will be dealing with. Please click here for further important information explaining what this means. This content is for informational and educational purposes only. This is not a recommendation regarding any investment or investment strategy. Any opinions expressed herein are those of the author and do not represent the views or opinions of TradeStation or any of its affiliates. Investing involves risks. Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options, futures, or digital assets); therefore, you should not invest or risk money that you cannot afford to lose. Before trading any asset class, first read the relevant risk disclosure statements on the Important Documents page, found here: www.tradestation.com .
NYSE:BG
by TradeStation
1
An investment resistant to inflation, GNR ETFThe SPDR® S&P® Global Natural Resources ETF (GNR) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P® Global Natural Resources Index. The index is composed of three sub indices, the S&P Global Natural Resources - Agriculture Index, the S&P Global Natural Resources -Energy Index and the S&P Global Natural Resources - Metals and Mining Index. Each index has a 1/3 weighting and provides excellent exposure to a number of the largest market cap securities in three natural resources sectors - agriculture, energy, and metals and mining. During times of high inflation, which we are no doubt currently experiencing producers/miners/growers of natural resources are excellent businesses to invest in as they have the ability to easily match prices to inflation and push them downstream to consumers. In addition the procurement and sale of natural resources is a capital intensive business whether that be mining, farming, or drilling for oil. This makes it harder for competitors to steal market share from the large established companies that comprise the GNR ETF. This diversified global ETF is an easy and effective way to gain exposure to businesses that should be less affected by a high inflationary environment. *Not a recommendation to buy or sell*
AMEX:GNRLong
by MarkE
$DBA Long Swing Trade Idea $DBA Agriculture fund looks bullish on weekly (macd cross) and monthly time frame. Looking at the monthly chart we can see a break above $20.75 zone implies a move through the VP gap to $23.8 zone resistance. MACD showing good momo and EMA's bullish cross implies continuation to the upside. Open Interest is very heavy on the call side, and on 11/17 a whale bought 10,300 contacts of the 1/21 19c ... Given the technicals and chart I followed this trade idea. Trade is working +14% so far and I think there's more room . Whale is still in the trade as well.
AMEX:DBALong
by FriscoTrades