U.S. Dollar Continues Downtrend As CRB and DBB Indexes Rise

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Last week, the Fed hiked interest rates by 0.25%. Most expected the hike following June’s announcement of a likely increase. The hike should not impact markets in any major way.

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Along with the rate hike, the Fed also revealed a modified forecast for U.S. domestic growth for 2018. The forecast calls for 2.5% growth, up from the previous forecast of 2.1%. Tax reform could help support the growth forecast.

The U.S. Dollar

The U.S. dollar remains in a long-term downtrend since the beginning of the year. The two latest Fed rate hikes (circled in orange below) resulted in a slight increase of the U.S. dollar. However, the prior hikes failed to support any kind of dollar rally.

Source: MetalMiner analysis of Trading Economics

The U.S. dollar traded sideways during the last quarter of 2017. From here, the U.S. dollar could either change trend or continue falling.

Current indicators suggest that the long-term trend appears stronger and the U.S. dollar weakness looks to continue, as it has failed to breach prior resistance levels. However, buying organizations will want to watch the U.S. dollar closely.

The CRB and DBB Indexes

Commodities and industrial metals usually trade inversely to the U.S. dollar; both remain in an uptrend.

The CRB index has breached our own resistance levels several times since summer. Oil prices, which account for a significant portion of the CRB mix, are the cause of the index’s rise.

Source: MetalMiner analysis of Trading Economics

This month, the CRB index fell after breaching previous levels. The small drop came as a result of  a higher U.S. dollar this month (commodities and the dollar historically correlate negatively). In bullish markets, these represent typical price movements.

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The DBB industrial metal index also appears to be in an uptrend this month, driven by the increase in base metal prices and a stronger steel industry. Therefore, buying organizations could expect price movements to the upside.

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