The US dollar and commodities experienced an upward breakout after extensive consolidations. The majority of fundamental and technical analysts regarded both breakouts as improbable.
US dollar breakout
The US dollar index broke above 108 and closed at 109.65 on Friday, January 10, 2025. Since late November 2023, the US dollar index has moved inside a consolidation channel between 99.60 and 108.00. The breakout above 108 was considered unlikely by many functional and technical analysts, especially after bearish dollar calls last summer by a famous investor.
Commodities (CRB Index)
The breakout of the CRB index above 302 was the least expected move, based on fundamental and technical analysis reports. The long consolidation between 254 and 302 started in July 2022 and by June 2023, many analysts were expecting a downtrend in commodities. The breakout above 302 last week is another demonstration that simple analysis cannot capture the uncertainty in the markets, especially when ruled by confirmation and wishful thinking biases.
Note that last week, while the US dollar index and commodities staged a strong breakout above long consolidation channels, stocks and bonds sold off. As noted in our weekly report, since 1990, a pattern of the S&P 500 index and 20+ year Treasury bonds falling more than 1.5%, while the CRB and the US dollar indexes gain more than 3% and 0.5%, respectively, has occurred only four times.
The first two occurrences of this pattern were after a consolidation in stocks (2003) and a bear market bottom (2009), but the third one was midway through the 2022 bear market. Unfortunately, the small sample does not offer any room for statistical analysis.
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