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USD, Commodities and other stuffs


USD (against majors and broad) have been strong for the last 2 years due to economic recovery, monetary effects and interplay with commodities. However those same factors might be reversing or stalled recently. Even with FED signaling some hawkishness we are not in the same environment as the 80s “FED behind the curve” and not even on those 90s strong growth, to remind us of the last two bull dollar cycles that market have in mind after the end of Bretton Woods.

On the two charts below we can see some trend changes on both monetary and economic growth. I am using as economic activity an index built with Housing Permits and Industrial Production to capture both effect as they have a strong cyclical pattern. For both Dollar (majors) and economic activity Im using the 10Y growth. Despite it measures a long term trend its useful specially to see trend changes:




The same trend switch is also possible to be seen on the monerary front. The below chart
I used the changes on the differential of the gap between US 10Y treasuries and the average of the G7 10Y. Though of course the correlation is not perfect (when I see something perfect in the financial world I know Im doing something wrong), again its possible to see some trend divergence.




Looking through another perspective the next chart shows the actual growth cycle compared to the
unemployment one. Unless (the famous “IF”) we have a change on this trend it seems the cycle
has lost some momentum at least. Some might say its just the oil stuff but Im quite sure other
isolated events like that happened in the past and both series still worked. 




Moving away from the monetary and economic activity, another factor that has shown some pressure on USD, at leat on short term, is the commodities price bounce.
After the 2007/08 crises despite all weakness on world trade volume growth, prices had an excess
up movement due to QE's, inflation fears, chinese stock building and strong speculative force, specially on gold with all easy access investors have on trading them and other products like ETFs, helping on herding behavior. What we see today is a normalization of the prices once even with
weak world trade volume, its difficult to justify lower prices for longer. Chart below shows the
world trade volume and the commodity prices year over year growth. (CPB data):





Another way to see the commodity price recovering is to show a long term chart and to notice
the mean reversion (if you believe on that) on the year over year monthly variation. If that works the price recovering might still have some way to go. (If someone is wondering, oil would be back close to $ 60s on that case).



Well, besides all lack of “hard science” this is a bit my view on broad USD and Commodities.
USD loosing momentum and weaker, and commodities still recovering some ground.

Sorry for some probably english mistakes and bulshits my head can do with financial data.
As soon as have more I come back on this scrap blog. I know I don't have the patience and ability to write (luck you) so I let you know on Twitter.

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