Will Emerging Market Currencies And Commodities Remain Weak In 2014?

One of the charting "tools" that we like to use are diffusion indices. A diffusion index is a simple, yet effective, way to look at breadth in any market. Below we chart a one year diffusion index of selected commodities vs a year one diffusion index of selected emerging market currencies. The main takeaway from this chart is that over the past 20 years there seems to be a decent relationship between commodities and emerging market currencies. When commodities are generally higher than they were a year ago, emerging market currencies tend to be stronger against the USD (and vice versa). In 2013, both commodities and emerging market currencies were both weak. Could this trend continue in 2014?  From a purchasing power parity perspective (which admittedly is a very poor timing tool), many emerging market currencies remain overvalued versus the dollar so their may be a structural headwind for both emerging market currencies and commodities in 2014.