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Currency Market: US Dollar Index Trends Strongly Higher, Although Consolidation is Due


Commodities: Coffee looks poised for a huge bull market, and this pullback is an opportunity.

The US Dollar Index (DXY) has accelerated its trend higher, amplified by the recent weakness in the Euro, Pound & Yen. While the trend is clearly higher, the risk reward is not as favorable as it was back around the 80 level. I will remain long, but have booked some gains with plans to add back aggressively on any pullbacks to the 82 level. Long term upside is still much higher, but I will trade around the position.

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The Mexican Peso looks like the next currency that could weaken against the US Dollar. It has not had the move to the downside as some of the other major currencies, and the technical setup looks very precarious for the Peso here. Notice in the below chart how the Peso is breaking below 50 and 200 day moving average support, and the MACD is giving a sell signal. Look out for further downside!

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As I mentioned last month, I think the setup in Coffee is extremely compelling at current levels. The poor fundamental situation in Brazil should be even worse next year, and if other coffee producing countries have similar weather related issues there is going to be a significant shortage. Demand rationing will be achieved only through higher prices, and the risk reward setup in Coffee futures makes it my current favorite trade idea into year end. I think the December contract has limited risk down to the 1.85 level (currently 1.925), and continued bullish developments could drive the contract north of 3! Good luck!

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Positions in KC, MCD, MSF, MXP futures, KC Options and JO equity.
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