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Great Graphic: CRB Index Hits 2017 Down Trendline

The CRB Index gapped higher today and it follows a gap higher opening on Tuesday, which has not been filled. Today’s gains lift the commodity index to a trendline drawn off the January and February highs and catches the high from late May. It intersects today near 181.35 and the high has been a little over 181.17. This is depicted on the Great Graphic made on Bloomberg, with five and 20-day moving averages added.

Today’s advance it being led by cocoa (5.2%), orange juice (2.2%), gasoline (1.5%) and sugar (1.45%). Today’s 0.8% rise in the CRB index appears to be a function of breadth, as nearly all the individual commodities are higher (except lean hogs and live cattle) even if gains a modest. The softs are up nearly 2% and the energy complex is up 1%.

It is widely thought that the weaker dollar boosts commodity prices as many are traded and priced in US dollars. However, the correlation with the dollar is not particular robust or stable. There are, of course different ways to measure the dollar. Looking for simply directional sensitivity, we conducted the correlations on the level of the CRB and the level of the Dollar Index. On a 60-day rolling basis, the correlation has ranged from about 0.3 to -0.55. It presently is near -0.2.

The euro-dollar is positive correlated with the CRB, though the 60-day rolling correlation dipped into negative territory twice in H2 16 and twice in H1 17. It is at 0.15 now, having ranged between 0.50 and -0.3, which as it turns out is near the correlation of the yen. The correlation between dollar-yen and the CRB has ranged between 0.5 and -0.2 over the past two years (on a 60-day rolling basis). It is not at a statistically insignificant -0.06.

The technical indicators suggest that while the CRB can advance toward the May high near 186.35, stronger gains may be difficult without consolidation/correction. The Slow Stochastic is already rolling over.

CRB Index

CRB Index

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Marc Chandler
He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.
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