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1/
USD
Generally, when we had a weak dollar, which was evidenced by an increase in the commodity market, this translated into something negative for the stock market and bond prices. Conversely, a rise in the dollar was seen as positive for US stocks and bonds. However, that relationship has changed. Long-term instrument prices have become disconnected from stock prices (could this be a warning sign?) and, lately, when money flows towards the American currency, stocks feel the pressure. Since 2020, every increase seen in the American currency has acted as a brake on the rise of the stock market.
Looking at the chart, the bullish rally initiated in 2020 stopped when the dollar began its ascent to 114. Conversely, the market contraction halted when the dollar returned below 105. This level has acted as resistance for over a year (aside from last summer’s rally).
The breadth of the market looks good, and the number of participants making new highs is on the rise, along with mid-cap stocks reaching new highs. Leadership has changed hands, and it is no longer the technology sector leading the ascent (which is very healthy). However, we must not lose sight of what might happen with the dollar, as it could completely change the scenario.
A breakout above that key level brings into focus the 107 level and potentially the 109 level. If the DXY approaches last year’s highs, it is to be expected that global equities will be affected.
2/
Gold
The price of gold reached a historic high this week, trading above $2,200 per troy ounce, after the Federal Reserve indicated that three interest rate cuts are expected for 2024. Typically, the price of gold tends to rise when interest rates fall, in part because bond yields seem less attractive in comparison.
Part of this is due to China continuing to stock up on gold, as a prolonged real estate crisis, tepid stock market, and shaky economy have pushed Chinese investors to seek alternative places to put their money.
However, despite marking a new high for the precious metal’s price, we see that the weekly candle does not show much strength, as the dollar has also increased in value. We must closely monitor the movements of the American currency, as this will undoubtedly set the tone for either moving away from recently surpassed levels or, on the contrary, seeing the price fluctuate around this zone for a while longer.
3/
Cotton
After breaking the multi-year base and reaching 103.8, something that has not happened since the end of 2022, the cotton price has dropped towards the 90 level.
The price is retesting the recently surpassed resistance level. If it manages to hold this price level, we could be witnessing a new push to target 119 in the first instance. This area is very interesting from a risk-reward perspective.
4/
Palladium
The price of palladium fails to break above 1100 and fails in its attempt to change the negative trend that it has been dragging since 2022.
Palladium ran a negative week, closing down -8% and falling below 1000. Bearish pressure remains and it looks like we could be seeing a return to the support zone, located around 800.
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Originally posted on March 23, 2024
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