Over the past several months, the US Dollar (DXY) has failed to push higher on a consistent basis despite a strong stock market environment. The weakness in the economy and the weakness in world currency markets have all combined to push the USD lower, but the weak USD has been unable to hold at these lows and has failed to rise above the previous lows. We believe this situation is the result of a multi-month sell-off in the commodity markets, which has hit the energy sector hard.
Commodity prices are driven by supply and demand. When demand outstrips supply, prices rise. As more people find it difficult to make ends meet, it becomes more difficult to make the purchases required by the economy, and this, coupled with a slowing economy, causes the commodity market to become unstable.
struggles to push higher after a multi-month | commodity market} As the price of energy rises, oil and gas producers are forced to raise the production rates, which in turn will force prices up again. As the price goes up, more companies will find it difficult to sustain their current levels of production levels and there will be a sudden drop in the supply of resources needed to fuel the economy.
struggles to push higher after multi-month | commodity sector} This is why the commodity sector is so susceptible to these kinds of fluctuations. If one commodity prices go down, the next one will likely follow suit, causing a chain reaction effect, as the price of other commodities follows suit. This is when the US Dollar (DXY) fails to rise and continues to fall, setting new lows.
struggles to push higher after a multi-month | commodity market} The most important thing to remember about the commodity market is that you never know where the price is going to go. If one commodity drops, then the next commodity is going to follow suit. The best way to manage risk is to stay below the resistance levels, and only trade in long-term trend lines when price action is indicating strength.
struggles to push higher after multi-month | oil prices} One of the reasons that the commodity market has been hit so hard in recent months is the impact that the fall in oil prices has had on the global economy. If the price of oil drops significantly, then the economy can take a huge hit, as consumers begin to curtail their consumption.
struggles to push higher after multi-month | current economy} In addition to the fall in oil prices, the current economy is also facing a crisis in the form of a weak economy. With unemployment in the double digits, consumer spending has been slow for the past year, and the weak economy makes it difficult to service debt. As a result, banks and financial institutions are tightening their lending requirements and reduce their credit limits, which can have a dramatic impact on the economy’s overall health.
struggles to push higher after multi-month | commodities trade} When the commodities trade is moving against a backdrop of a weak economy, it is very easy to get caught in the trap of investing into commodities trade. It’s important that you look beyond the technical indicators and invest your money in the long term when looking to earn an income from commodities trading. Look for opportunities where the price action suggests strength in the market, and if you find that there are no other options available, wait and you might find yourself in a good position to pick up a nice profit.