Market Strategy - Weekly Commodities Strategy: Bullish Signals At Start Of 2018 - FEB 2018

Commodity prices have posted a strong start to 2018, with breaks higher by oil and industrial metals, plus a strong rebound in gold. We continue to hold a neutral bias towards the broad commodities index on a three-to-six month horizon. In particular, we expect that recent oil price gains will subside and industrial metal prices will stagnate. A broad factor that should help take the wind out of the recent commodities price rally is a stabilisation in the US dollar after a particularly weak December-January. Indeed, we have reiterated our view that gains in the euro versus the dollar are unsustainable and a reversal in the dollar's favour will act as a headwind to additional commodity price gains ( see ' EUR: Rally Running Out Of Steam ' , January 3).

That said, should the technical picture continue to improve for commodity prices, for instance in the shape of a decisive break higher in the broad commodities index ( see chart), we would reassess this neutral near-term bias. A break higher in the euro, for instance above USD1.20/EUR, would also be a bullish signal for commodity prices as it would suggest significant additional dollar weakness.

Other Key Views:

  • Threatening To Break Higher
    Bloomberg Commodities Price Index (weekly chart)
    Source: Bloomberg, BMI

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