Tuesday, January 28, 2014

Commodity Currencies Present a Conundrum

From the ChartWatchers blog:
Recently, the IMF Leader - Christine Lagarde - talked about deflation. She announced we must do all we can do prevent deflation from occurring. In Davos, the IMF released their 2014 World Economic Outlook. Look at the trend they predict for commodities.
Screen Shot 2014-01-25 at 8.06.39 AM
Screen Shot 2014-01-25 at 8.06.54 AM
That report can be found here. IMF WEC Davos
Even presidents don't trust economists. Truman asked for a one armed economist so they could stop referring to 'On the other hand...'

The charts are our best tool to see the current picture in relation to the past. Unfortunately for the commodity countries and currencies, the chart patterns align with the economists views.  But how many economists realize the strong negative global alignment of the currencies and the commodities ? More importantly, do they realize the macro charts are all breaking through support together? Look at the chart below with the Canadian Dollar, the Aussie Dollar, the Brazilian Real ETF, the Emerging Market Currencies ETF ,and the grey shaded area is the Commodity Research Bureau Index of 19 commodities.
$CDW Commodity Currencies 20140124
These are major support levels that are breaking whether you rely on the blue line head/shoulders patterns or just flat horizontal support and resistance lines. Are they permanent? No. But until they get bullish as a group and start reversing these long term scenarios, we have to stay with the trend we are in.
Some of my recent blog postings have been discussing the XMA.TO which tracks materials. This should be the next sector to break out higher as the industrials had a fabulous year last year.   One concern is XMA.TO seems to start every January since 2010 with a roar, then roll over and move lower....MORE