As the US Dollar Nears Support, Its Movements Will Be Crucial For Metal Prices

by Raul de Frutos on OCTOBER 20, 2015

A combination of weakness in the US dollar and a technical oversold condition in commodities has given a boost to prices since August.

The chart looks nothing but bearish. The recent price stabilization looks like a normal reaction after prices fell sharply in July and August.

However, commodity prices could go higher if 1 of their 2 major drivers, the dollar, falls from this point:

The recent weakness in the dollar is normal activity, so long as the index remains range-bound.

However, the index is approaching a key support level that, if broken, would be a bearish signal for the dollar, which in turn would be bullish for commodities, helping extend their recent rally.

What This Means For Metal Buyers

The main 2 factors driving commodity prices are weak Chinese demand and a strong dollar. If the dollar is not able to hold support, we would take this as the first key signal that suggests a turnaround in commodities markets. The situation in China would still need to improve to boost metal prices, but a lower dollar is definitely a major risk factor that metal buyers need to watch.