Recent developments in the currency market may worry some gold and silver investors, as the dollar refused to move lower at the cyclical turning point, an issue that we touched upon in our last essay, and the euro seems to have broken below its medium-term rising support line. This is so because we’re used to strong negative correlation between the precious metals and the USD and the abovementioned situation seemingly suggests a bullish outlook for the U.S. currency (further supported by a negative one for the euro). And this is why we invite you to read today’s essay portion, as it reveals some interesting facts that shed new light on the outlook for the currency market and its link with precious metals. We’ll start with USD’s long-term chart (charts courtesy of http://stockcharts.com.)
Click to enlarge.
In the very long-term USD Index chart, we have seen the situation change somewhat this week. The breakout here is now quite significant, and we must consider the possibility that the USD Index might move higher in the medium-term. The situation in the short-term, however, is overbought, so it is likely that we will see the index decline soon and then we’ll see what happens next.
If the correction stops at the declining support line, around the 80 level, then the breakout will be confirmed, and a rally will likely follow. If however, the correction takes the index below the 80 level, the whole breakout will be invalidated, and lower values would probably follow. At this time, the medium-term and long-term outlooks are somewhat unclear based on this chart alone.