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US Dollar Index Has Broken Out


Commodities: Coffee looks poised for a huge bull market, and could break out soon.

The US Dollar Index has broken out to new year-to-date highs, and looks like it should trend higher into the 85 level. That level has been resistance for basically the past 3 years, so it could take some time to work through it. A pullback to 81 would be an ideal spot to add, but it seems like right now the US Dollar Index might just consolidate here above the breakout levels before taking another leg higher. Stay long!

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The Japanese Yen has proven me wrong with the bullish USD environment, and it has started breaking to new lows. I thought the Yen would benefit alongside the USD in a risk off environment, but with equities breaking out to new highs, the Yen rolled back over after selling off near the 200 day. I'm staying flat this market for now, but will keep a close eye on the Yen if risk comes back off...

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While I normally talk about currencies in these articles, I did want to highlight another futures related market that I think has a very interesting setup over the next year, and that is Coffee. Brazil is the largest world supplier of Coffee (about 33% of total world market) and they have had a huge drought this year. The Coffee harvest in Brazil is close to complete, and I believe over the next month or so the market is going to start realizing that Brazilian Coffee yields are going to be drastically below already lowered expectations. After a huge run earlier this year, Coffee has pulled back and consolidated over the past 3-4 months. The setup is developing for Coffee to start trending higher soon. The December contract is trading just below 2, and I don't think it goes much back below 1.80 this year. I think the potential upside could be well over 3, so you can see why I like this great risk reward setup! Coffee futures are pricey to margin, so you might play this through futures calls, or an equity investor could just buy one of the Coffee ETN's (JO seems the most liquid and best play to me)...Good luck out there!

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Positions in DX, JO, KC, KC Options, MCD & MSF futures.
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