With the dollar having turned the corner and headed higher, at least for the time being, we got stopped out of our Swiss Franc positions last week. Gold went from sideways to south, and our stop loss point was triggered there as well.
Reader Steve had this to say:
I am confused, what caused the dollar to strengthen and what caused Oil to weaken? In fact why have commodities weakened, has demand changed so much?
Can you help me understand the dynamics of the dollar and the commodities in general?
From my vantage point, a dollar reversal was coming; it’s just not clear yet whether this is just a short-term phenomenon or a long-term directional turn around. The Euro zone finally realized that their economies were weaker than anticipated and may even be worse off than the domestic one here in the U.S.
With the “Euro’s” constant concern about inflation supported by a trigger happy (in terms of raising interest rates) ECB (European Central Bank), interest rates may have hit a brick wall. Slowing economies may force lower rates in the future and that has put a floor under the dollar and contributed to the recent reversal.
Slowing economies around the world causing less demand for a variety of materials (including oil and commodities) may cause that bubble to burst as well. After all, demand, or lack thereof, is what makes prices move.