(By Michael Harris) The DBC daily chart indicates that we are entering in a pre-deflation zone. We may also notice that loud voices against more quantitative easing are not heard with the same frequency as before. In my opinion, this is because of the European problems and the fact that other major producers of commodities, like Russia for example, are starting to see prices dropping below break-even. Thus, they turn to the US once more for help.
We all heard the loud voices during the last four years criticizing Ben Bernanke for his quantitative easing policy. The criticism was one-sided in the sense that quantitative easing debases the dollar and causes inflation. But nothing of that short has happened. Those who criticized Ben Bernanke did not fully understand at least two facts at that time: (a) currency values are cross rates, i.e. they reflect relative performances and (b) deflation is much worse than inflation. Now that they have come to understand the facts, the started begging for some more.
But they are not going to get it when they want it. This is standard behavior from the FED. It rarely rewards speculators unless the stakes are very high. I do not think they are at this point and Ben Bernanke can wait for a while, maybe even after the elections so he is not accused of taking sides. Let us imagine for a moment what would be like if Ben Bernanke had not acted on time when the crisis began. USA would be in a worse state than Europe is now and Europe would have already disintegrated. The funny story is that most of the criticism for QE came from European hard-core adherents to Austrian Economics.
With DBC dropping below support at $25 yesterday and below the low of last November at $24.37, a move towards long-term support at $20.84 is probable. In my opinion, any drop below $21 will be a signal of deflationary pressures building to unacceptable levels. At that time, if it even happens, the FED may act depending on many other things some of which we know and some of which they only know.
Of course, with RSI(13) equal to 26.64 on the weekly chart, the 2009 low of about 20 is near. We may see this time around values below 20 for the RSI(13). However, this indicator is not very important just by itself.
Disclosure: no relevant positions.