Commodity market speculators have been seriously rattled this week, and many are now moving to unwind positions in the highly leveraged commodity futures markets.

Much of the selling pressure this week was due to a combination of profit-taking from previously established long commodity positions and also long liquidation from the weak-handed futures traders.

There is also the old trading adage that says, "When in doubt, get out." There is certainly enough doubt among financial, currency, stock and commodity traders after last week's sudden demise of the investment banking firm Bear Stearns (BSC - commentary - Cramer's Take).

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Source: Futuresource and TradingEducation.com

An examination of the daily chart for the Continuous Commodity Index shows just how severe the decline in commodity futures market prices has been this week. In the past week or so, markets like gold, crude oil, corn, soybeans and wheat had set all-time record highs. Many other commodity futures markets hit multi-year highs.

A major fear for all commodity market bulls in the present economic environment is deflationary pressure. Weakening world economies and shaky world financial markets argue for lessening demand for raw commodities. If deflation does grip world economies, that would be a sure bet that major market price tops are near or already in place in those recently high-flying commodity futures markets.

There is also a camp of analysts and traders that argues that the present setback in the commodity markets is just a needed downside price "correction" after big price advances that were scored in recent weeks. They are proclaiming the present declines in commodity futures prices are -- or will soon represent -- bargain-hunting buying opportunities in markets that are destined for still-higher prices in the coming months.

Watch the Buck

All commodity market traders need to continue to monitor crude oil and gold prices. Bigger price moves in these two bellwether futures markets will very likely find most other commodity futures markets following along in a coattail effect.

And these two commodities will take their cue from the value of the U.S. dollar against the other major currencies. After falling to recent record lows against other major currencies, the dollar has rebounded this week. But it remains to be seen if the dollar has put in a long-term low and will continue to trend higher, or whether this proves to be a false rally.

If the U.S. dollar continues to show strength against its counterparts into the end of this month, then we can assume that a major low is in place and that the U.S. currency can continue to trend higher in the coming weeks, or longer. That would also very likely mean commodity markets have truly seen their upside bubbles burst.

Click here for larger image.

Source: Futuresource and TradingEducation.com

Click here for larger image.

Source: Futuresource and TradingEducation.com