The Reuters CRB has always been a good indicator of broad commodity strength so when it starts to exhibit signs on a possible reversal it’s usually time to sit up and take notice.
Since the peaks of 2008 when it posted an all-time high of 473.97 the index has slowly pulled back its losses after the aggressive falls we saw in late 2008 from the lows it posted less than a year later at 200.34 in March 2009.
Depending on the strength of today’s US payrolls and the effects on the US dollar we could be building up for a sell-off in the index which could well act as a drag on broader commodity values especially in crude oil, gold and copper which collectively make up 23%, 6% and 6% respectively.
Looking at the above chart if the US dollar continues to gain we could see the weekly CRB chart post a key reversal week, bearish engulfing week which would be broadly negative in the short term for commodities. Having failed just below its 50% retracement of the 2008 down move a break below support at $320 could well spell further declines.
Looking at copper and crude oil charts the position is less clear, but gold prices could well be susceptible to further losses having broken below trend line support at $1,360 and the 55 day moving average and further US dollar strength could see a move towards $1,320 in the short term.
In copper the key level lies around the $4.20 level and if we close the week below this level we could well see further losses.
So to recap, the key commodity levels on a weekly close are $320 on the CRB, $4.20 for copper, and $1,375 for gold, which is where the 55 day MA sits, and also weekly close below this level, would also post a bearish engulfing week for the yellow metal as well.
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'Commodities Set For a Correction?', Feature by D. Jones, last update: 7-Jan-11
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