CRB-Dollar Correlation Returns as Base Metals Trade Higher

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Metal Prices

In January, some base metal prices increased sharply. This month, bullish sentiment in the industrial metals complex has extended to all base metals, as well as steel.

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Commodities remain bullish, while the U.S. dollar continues to look more bearish.

Back in Trends

Commodities (tracked via the CRB index) and the U.S. dollar have historically correlated negatively. This means that when one increases, the other decreases. The opposite also applies.

Despite this correlation, the first six months of 2017 showed a divergence in this trading relationship. Both the CRB and the U.S. dollar traded down.

Blue line is the U.S. dollar and black line the CRB index. Source: MetalMiner analysis of StockCharts

However, the historical negative correlation has returned.

The U.S. dollar has struggled to increase. The dollar has reached its lowest levels in more than three years, and appears unable to find a bottom. Meanwhile, commodities currently trade on a clear uptrend.

Oil prices breached our short- and long-term bullish levels and may still climb further.

Raw Materials

Raw material prices have slowed down this month after the sharp increase in December. Coal prices decreased sharply at the end of the month. However, they have held over the stiff $100/mt resistance level. Therefore, MetalMiner remains bullish on raw material price trends.

Iron ore and Coal prices. Source: MetalMiner analysis of TradingEconomics

Increasing raw material prices generally support industrial metal prices. Iron ore and coal, in particular, support steel prices.

What This Means for Industrial Buyers

As the signs of a bullish market remain in place, buying organizations may want to identify appropriate price signals to better plan purchases.

For those that want to reduce risk and costs, MetalMiner recommended buying some volumes on the buying dips in December, before base metals skyrocketed again.

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To learn more about how to better plan on-going purchasing requirements given metal price volatily, take a free trial now to our MetalMiner Monthly Outlook.

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