After a very brief hiatus, the euro debacle took center stage again and brought commodity markets crumbling down. There are two issues here that are acting like a double edged sword and pressuring commodity prices. First the strong dollar means reduced global demand for commodities. Second the destruction of the euro is both structural and economic in nature and that means that there is economic crisis in the EU. This suggests not only a potential collapse of several EU countries but also a significant drop in buying power and demand. Combined these two components will limit commodity inflation for a long time period. The highs for many key commodities I believe are already in and the trade over the next several months is on the short side.

Energies

Oil prices fell as the publicity of the Gulf spill draws less and less attention (despite the likelihood that this spill will have a profound affect on the United States) and the collapse of the Euro pressures global demand. I recommend selling into bounces with long puts. Natural gas remains a long term buy and I continue to see the long nat gas versus short crude oil spread as a solid play through May.

Financials

There are several critical issues allowing the stock market to potentially test the fat-finger lows. A lack of clear information on the fat finger trade has a negative intermediate term impact on market psychology. The volcano in Iceland remains a lingering and potential hot-button economic issue reliant on winds and mother nature to determine its fate. Germany's opposition to the support provided to Greece sets the tone for constant debate over the policy structure of the euro and its ability to survive as a currency. Overall these issues will help further the liquidation in the stock market, which is likely to test 10,000 on the Dow again in short order. Bonds remain a buy on flight to quality and a shift to more conservative investment holdings. In addition the lack of strength in European economies may create a demand shift from investors in government bond holdings from those countries. At one point higher rates do not necessarily make the risk worthwhile for those investors. The U.S. dollar surged through my long running forecast of a move to 86. The upside potential remains great and panic selling in the euro could cause the dollar to spike to as high as 91 on this current move. However, I recommend buying calls in the euro on a move to 1.1550 as a short term oversold play should it reach those levels. The Canadian dollar, Aussie dollar and British Pound all remain strong sells. The Japanese yen should spike rally to 112 this week if bullish momentum is going to resume in that market near term.

Grains

Volatility remained suppressed in this sector last week but do not expect that to continue. This time of year grains are subject to wild swings based on weather outlook, but more importantly the U.S. dollar's rise will begin to force a strong decline in grain prices over the next two months due to declining foreign demand. I recommend buying puts in corn and soybeans, while wheat remains a value long between 4.50 and 5.00.

Meats

Cattle nosedived last week and should continue to selloff dramatically in coming weeks and months. Put buying on bounces is recommended. Despite hogs being overdue for a price correction, I do not see the current technical setup as overly bearish until the market penetrates 82 on the July contract.

Metals

The stock market decline and euro panic continues to skyrocket gold prices amid a flight to quality play. It is truly impressive just how strong the gold market is if you take into account the cost for a euro currency investor to buy gold. If gold went to 1230 during a 12% drop in the euro currency then to someone holding euros gold would appear to be trading for a currency adjusted price of about 1370. When markets are in a buying hysteria mode like gold is currently, price can get out of control very quickly. Gold could hit 2,000 in a month or deflate back down to 1,000 or 900 - not to be ambiguous in my views as I am long term bearish, but rather acknowledging panic trading for the unpredictable hysteria that it is. While long term the dollar connection will impact price, it is clearly not the driver of gold prices at the moment. Silver volatility expansion should increase as gold continues to set new highs. Copper remains a strong sell as global demand decreases.

Softs

Coffee is fending off the dollar strength quite well and setting up a volatile breakout rally in coming weeks. Buy bull call spreads or long futures with put protection. Cocoa has failed miserably and on a technical level has one more band of support before testing a 50% retracement, then a huge collapse could occur. The market is reeling from the possible plunge in European demand and the strong dollar is helping some stubborn longs run for the exits. Long term deep out of the money puts are recommended. Cotton remains a buy on dips, playing off of low acreage and general cyclical undersupply. Sugar is a buy at these levels despite a surplus supply. OJ is showing signs of technical support but I would be shocked if we rallied much further here. Because of the lift in prices I would recommend puts if prices trade in the mid-140s.

James Mound is the head analyst for www.MoundReport.com, and author of the commodity book 7 Secrets. For a free email subscription to James Mound's Weekend Commodities Review and Trade of the Month, click here.