For the last four months trading commodities, commodity currencies vs. the Yen (such as the Aussie Yen), and TIPs vs. the 10 year is probably about as close as one gets to good old fashioned trench warfare. Just when the inflationists are about to break through the deflationists lines of defence they mount an intense counter attack. However, there is evidence that each time the deflationists mount an attack they make less ground each time, i.e. the bulls are gradually moving their defensive line forward. This suggests to us that the deflationists are slowly losing the ability to hold their line. Once (should we say if) the inflationists break through they are likely to move deep into deflationist territory…..i.e. on breaching $75, crude is likely to move quickly to $100!
Perhaps the two most important indicators we continue to watch for hints of a breakout in commodity prices (the CRB above 270) is the Aussie Yen and TIPs relative to the US 10 year. Breakouts in these two indicators will give a powerful confirmation of an impending breakout in commodity prices.
Sometimes the waiting is the hardest part!
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