EconomicsGlobal

Commodities at a Crossroads (Pt 2)

DBC/IEF  
DBC/IEF  
After a strong rally in early 2019, commodities seem to have taken a breather in recent sessions. Since mid-January 2019, due to increased global macro headwinds, as well as slowing economic activity in Europe and China, commodities ( DBC as a proxy) have been treading water against key safe haven assets such as the US Dollar (Part 1) and US treasuries (above).

As can be seen in Part 1, when commodities are measured against the US Dollar , the price ratio (DBC/UUP) failed to move higher in recent sessions, and is struggling to re-test its 20-Day EMA (Green) and 50-Day EMA (Blue). Moreover, in the chart above, a similar pattern emerges when commodities are compared against US Treasuries. The price ratio between commodities and US Treasuries (DBC/IEF) moved higher since early 2019, but failed to break higher above its 50-Day EMA and is also struggling to clear this important hurdle.

It seems that commodities are at a crossroads at the moment, in that the asset class is trying to break its 50-Day EMAs against the US Dollar and US Treasuries respectively. If commodities can break through these levels, expect the asset class to move higher in the short-term. If not, or if global economic indicators do not improve over the next few weeks, expect more downside in the near future.
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