Commodity Dollars Kept DailyFX Analysts Guessing In October, Where Do They Stand Now?

The DailyFX analysts correctly betted against the commodity dollars to start October but the exaggerated moves left them susceptible to retracements that saw price action at the end of the month go against the trend. The expected decline in the global economy had sunk commodity prices taking the Canadian, New Zealand and Australian dollars in tow.

Commodity Dollars Kept DailyFX Analyst Guessing In October, Where Do They Stand Now?

The DailyFX analysts correctly betted against the commodity dollars to start October but the exaggerated moves left them susceptible to retracements that saw price action at the end of the month go against the trend. The expected decline in the global economy had sunk commodity prices taking the Canadian, New Zealand and Australian dollars in tow.  Although, some of our analysts tried to anticipate the expected reverse in price action, the majority held to the dominant trend.

Commodity prices according to the CRB index dropped from its September high of 425 to 344 by mid October as it became obvious that the contagion from the U.S. subprime crisis was spreading throughout the world and its impact world considerable slow the global economy. The expected drop in demand for raw materials would send traders deleveraging their long positions and the unwinding of the commodity bubble accelerated faster than anyone had anticipated. October would see the Canadian dollar fall nearly 2,400 pips before retracing over 1,500. The Australian dollar followed with a 1,900 pip drop and 1,000 pips retrace with the New Zealand dollar dropping a 1,000 pips and gaining back 500 pips.

What Has Changed?

The outlook for the global economy continues to dim as the U.S., Europe and Japan have all officially fallen into recession with consecutive quarters of negative growth. The fallout from the credit crisis is still filtering throughout the world with emerging markets also being impacted by the tight credit markets.  The G-7 nations have taken considerable measures to help liquidate credit markets which are now just beginning to thaw. However, the problem is a global one and if the recent non-action following the G-20 summit is any indication then the necessary measures to stem the decline may not be forthcoming. Although commodity prices have fallen sharply, they still remain well above the levels that were seen only four years ago in 2004, leaving room for more declines. Indeed, many of our analysts remain bearish on the commodity dollars with six choosing to take a short position last week. However, several are looking at the possibility that a bottom may have already formed and the greater potential may be to the upside. Check out their picks on these currencies every Thursday and Friday.

CRB Index

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To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com