The Australian Dollar (Aussie) was about to break out from a 2 year decline in the first week of January. This did not materialize, and was the writing in the wall for commodities. The devastating effect that the tsunami of selling created this week will go in history books as ‘Black Thursday‘ when peak fear hit. Needless to say the Aussie got crushed as well. Right now this currency pair is testing 2009 lows, a level that most likely will hold.
The Aussie is a leading indicator for commodities.
It is easy to get caught up in daily price moves. So we want to look on the monthly chart to identify the dominant trend.
What’s very interesting on this chart is that the monthly dominant pattern registers now the completion of a 17 year giant reversal.
This is impressive, and pretty concise.
The way we interpret this is that commodities started rising some 17 years ago, peaked when the Aussie peaked in 2012, and completed a 7 year downtrend.
No coincidence, crude oil fell to multi-decade lows this week. Also silver is triple testing this decade’s lows.
This chart suggests that a giant cycle is now complete.
It bears watching to understand if we start a consolidation before a new cycle starts. In essence after a decline we have to see a consolidation period in which we see a reversal on the lower timeframes (daily and weekly).
The least likely path is a continuation of selling, which would induce deflationary pressure. The line in the sand is the current level (0.60 to 0.63).
