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January 12, 2017: Market Minute: A pullback in the US$

"Buy the rumour and sell the news" is an old adage in the securities business.
The recent run-up of the U.S. dollar, fueled in part, by the speculation that the U.S. President-elect was going to greatly invigorate the economy, is a classic example of that saying.

The upward pressure on the US$ in Q4 was largely driven by a campaign promise of a massive $500 billion injection in infrastructure spending.

There was also bold talk about creating millions of jobs while making America's roads, bridges and airports "second to none".

All of this speculation of potential growth was great fodder for the dollar bulls.

However, by early January the GOP leaders were starting to back-pedal on some of Donald Trump's promises.

As the news of a likely slower pace of economic growth filtered out, traders were quick to sell the Big dollar.

With the US$ now rolling over and facing headwinds, many commodities were catching a lift.

Precious and industrial metals immediately staged an upward bounce.  Gold rose 6.7 percent, silver jumped 7 percent and copper bolted over 8 percent - all right after the "buying froth" ended for the dollar.

Oil (WTIC) was among the few commodities that didn't respond to the recent retracement of the US$.  Though long-term, oil has a negative correlation to the dollar.

Bottom line: The run-up and the eventual fading of the U.S. dollar is a classic example of "buy the rumour and sell the news".

The President's pre-election rhetoric on how to "make America great again" was to inject $500 billion into infrastructure  projects and create millions of jobs.

This would greatly invigorate the economy.

The reality appears to be a slightly softer approach with mixed messages still coming out of the GOP.

Nevertheless, the "sell the news" weakness in the US$ provides commodity bulls with a short-term opportunity to profit from the bounce in natural resources.

Look for gold to advance to $1,220, silver to $17.30, copper has legs to $2.75 and WTIC is still expected to top-out at $58-$59.


Donald W. Dony, FCSI, MFTA