Feb 6, 2018 – Commodity Weekly: After the support of weak dollar diminished, commodities joined the selloff
After a supportive week of depreciating dollar commodities are getting hit by sell off in equities and overall negative sentiment in risk assets. While the dollar should have been helping commodities rise, it wasn’t entirely the case even last week and the air was filled with tension especially after the FOMC meeting on Wednesday where the Fed noted inflation is on track. The most negative impact was on the Energy sector, Grains are holding relatively well and Sugar had also a few good days as investors were probably liquidating some of their shorts.
The more aggressive central bank outlook scared investors all over the market place and made them scale back on the positions built in the last year. Oil traders joined the crowd in selling their positions although the selloff wasn’t that aggressive as in equities ahead of a series of monthly report. Tuesday we have EIA and next Monday Opec and Tuesday IEA Monthly oil reports will give us a hint how these institutions see the development of market fundamentals.
The sector of grains saw a good week after news about drought in South America (corn and soybeans) and Kansas, Oklahoma (winter wheat) made traders liquidate a huge part of their shorts. However the magnitude of short covering increased the likelihood of additional selling if negative news will not be confirmed.
The huge short that was built up during the last year is the biggest obstacle ahead of the bears despite the negative fundamentals persist. The raw sugar #11 traded in New York could not break the 13 cents psychological support last week and this changed the sentiment into more bullish, or at least less bearish. The prices rallied recently up to 13.90 that was most probably caused by the liquidation of some of the shorts at least. We will know more before the week end.
Good Luck and remember to watch your risk and be consistent
Mr. Tech Man