As we pointed out last month, the US dollar is showing some weakness for the first time in almost a year. That dollar weakness has helped metal prices during the second quarter. However, the recent price movements aren’t reason enough to suddenly become bearish in the dollar.
The dollar increased in value very quickly in 2014, so it’s not weird to see the dollar taking a breath before it continues on its way up. Technically, this is called a “correction within an uptrend.”
The question now is whether the dollar has weakened enough already or if it’s due for further declines.
The dollar index stopped declining last week as it approached a key support level. The dollar index has already retraced 38% of the steep move that started last summer.
This would be a normal retracement that many traders look for, although we don’t really trust these Fibonacci retracements. It is true that it looks like the dollar might have fallen enough and it could be ready to resume its uptrend.
Coincidentally, we saw many industrial metals falling sharply last week. A sign that metals are incapable of making significant upside moves and that the odds keep favoring a strong dollar and a continuation of a bearish commodity market.