Article / 03 March 2014 at 15:18 GMT

Commodity RSI: Ukraine is making it hot

Head of Commodity Strategy / Saxo Bank
Denmark

• Tensions in Ukraine see more buying of commodities
• Coffee, wheat, hogs all showing overbought signs
• Crude rises as fears loom over huge energy-exporter Russia

By Ole Hansen

Relative Strength Index (RSI) is a technical-momentum indicator which attempts to determine when a market is in an overbought or oversold condition. It is deemed to be overbought when above 70 and oversold when below 30, but traders often have individual preferences and set their parameters accordingly. RSI is best used as a valuable complement to other individually preferred technical tools.

Commodity RSIs have been moving deeper into overbought territory not least due to the added boost many of these markets has been given with the raised tensions between Russia, Ukraine and the world. Speculative traders such as hedge funds have been strong buyers throughout February with the net-long position across 24 US traded commodities rising to the highest in at least five years.


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Ukraine's increasingly ugly standoff with Russia has helped propel commodities upwards. Photo: De Visu \ Thinkstock


The majority of the agriculture sector led by coffee, wheat and hogs are now showing signs of being overbought with speculative traders having rekindled their interest for the sector amid supporting fundamentals. Wheat and corn are two of the best performing commodities today on the combination of the continued cold US winter and the risk of disruptions now and in the future from the Black Sea. Ukraine is on track to become a top three exporter of corn after Brazil and the US and the sixth largest wheat exporter this year.

WTI and Brent crude oils sharp move higher today has seen the nine-day RSI on WTI crude move back into overbought territory with Brent not far behind. Russia is the world's biggest exporter of energy from gas to crude and the risk of supply disruptions currently support the price.

Gold which was running out of steam last week received a new boost from the heightened tension and it has taken the price back up to a four-month high at USD 1,350/oz. Copper is the only commodity currently finding few friends as the metal continue to react negatively to news about slowing activity in China. 

 Commodity RSI

 Ole Hansen is an industry-wide recognised analyst on all commodities-related issues. To keep up with Ole, click through to our social online trading platform

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