Tin Has a Message For the Dollar

The US Dollar Index is headed for a multi-month uptrend, if you can believe the message from tin prices. 

Tin is an industrial metal, used in electronics and for making corrosion resistant coatings for other metals.  Demand for it, and thus pricing, is very sensitive to the strength of the global economy.  Even more interesting, it has an inverse relationship with the value of the dollar.

For this week’s chart, I reversed that inverse relationship by plotting tin prices on an inverted scale.  That allows us to better see how tin prices and the Dollar Index move together with a strong correlation.  It is a strongly inverse correlation in real life, but shown here as a strong positive correlation thanks to the inverting of the scaling.

The big up move in tin prices over the past year has seen the price go from a low of $6.11 per pound at the Covid Crash bottom to up over $15 by May 2021.  This up move in tin prices (down on the inverted scale) has coincided with a more than 10% drop in the US Dollar Index.

This is important because when there have been similar big price increases for tin prices in the past, they have been followed by several months of gains for the dollar.  This does not constitute a signal to tell us that such a move in the dollar is starting at any particular point, but rather it is a condition telling us what to expect when the dollar does turn. 

That message also comes from some of the COT report data on currency futures contracts.  Here for example is the British pound:

The pound has had a nice rise since the Covid Crash low, and the big money commmercial traders have now moved to a big net short position collectively.  It is not their highest net short position ever, but it is high enough to say that a big down move in the value of the pound (up for the dollar) should be coming.  That means they are betting on a down move for the pound versus the dollar.  When they get to a big skewed position like this, they usually end up being proven right, eventually.  The pound may not start downward right away just because of this big skewed position, but eventually it goes that way.