Has the Correction in Commodities Started?

Last updated 6/15/2009 4:51 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Declines in the prices of gold, oil and copper at the start of this week’s trade are weighing heavy commodity dollars.  After its parabolic run which saw prices double since March, oil& nbsp; has finally run into serious resistance at the $70/bbl level as investors question whether the rally can be sustainable under the current economic environment. With gas prices rising towards the $3/gallon level, at the same time as US unemployment approaches 10%, the likelihood of reduction in consumer demand appears to have increased.

Should oil prices fall through the psychologically key $70/bbl level the impact on USD/CAD could be significant. The pair has already bounced 500 points from recent lows at 1.0783, anticipating the stall in the oil rally, and may now target the 1.1500 level if crude falls into the $60’s.

Meanwhile, copper and gold prices have also retreated off their recent highs with yellow metal dropping    well below the $950/oz. to trade $932.00 in today’s session as yields on the 10 year US bonds improve to 3.75% from nearly 4.00% reached last week. As fears of inflation begin to recede and gold possibly retraces to the $900/oz barrier the AUD/USD& nbsp; should follow suit. The pair tested but held the 8000 level in today’s trade, but could easily fall into the 70’s if the correction in commodities persists.

With markets starting to question whether the recovery trade has gone to fast too far, the synchronized correction in equities and commodities this week could pressure risk currencies especially if fundamental data begins to falter.  Having been the greatest beneficiaries of the rally, the commdollars may now become the biggest victims of the correction if markets begin to drift lower as the week progresses.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.