DOLLAR WEAKENS AS COMMODITIES REBOUND -- COMMODITY INDEX NEARS TWO-YEAR HIGH

DOLLAR INDEX BACKS OFF FROM 200-DAY LINE...A rebound in the dollar during the first quarter may have run its course.   Chart 1 shows the Invesco Dollar Index Fund (UUP) falling back below its 200-day moving average and threatening its 50-day line.   What the dollar does from here could have some impact on commodity prices which usually do better when the dollar is weakening.   That's partially because global commodities are priced in dollars.   A weaker dollar also increases the odds of commodity inflation and higher bond yields.   Commodity prices are rising today.

COMMODITY PRICES ARE RISING TODAY... Commodity prices are usually a leading indicator of inflation.  Which is why they're being watched so closely for signs of higher inflation in the pipeline.   Rising Raw material prices are usually the first sign of inflation.  That usually leads to increases in  producer and consumer price inflation which we've seen over the past week.   Which is why today's commodity gains are worth paying attention to.    The daily bars in Chart 2 show the Invesco Commodity Fund (DBC) climbing sharply today after a brief pullback.    For the record, most of those gains are coming from agricultural commodities as well as base metals and energy prices.    A close above its March high would resume the general commodity uptrend that started last spring and push commodity prices to a multi-year high.

A LONGER TERM LOOK AT COMMODITY UPTREND...The weekly bars in Chart 3 show the DBC having already risen to the highest level in more than two years.   A close above its March high would put it at the highest level since 2018 and could set up a test of that previous peak.   Since rising commodity prices are inflationary, that puts upward pressure on bond yields as well.   Which is why higher commodity prices increase the odds for higher bond yields.    Today's commodity rebound may also be lending support to the energy and materials stock sectors which are having a relatively strong day.   What the dollar does from here could also play a role in commodity direction.