We haven’t touched on currencies for quite some time (our latest essay was dedicated entirely to gold: Gold Price in May 2013), but last time we did, we mentioned the long-term breakout in the USD Index, which at that time was starting to take shape, but as the time wore on it became more and more significant. This is why in today’s essay we’ll focus mostly on the U.S. currency, review its current technical situation and its implications for gold and silver. Let us then jump straight into the chart analysis — we’ll start with the very long-term chart where the breakout is most clearly visible (charts courtesy by http://stockcharts.com.)
Click to enlarge.
The index has actually confirmed a breakout above the very long-term resistance line. It has closed above it now for three consecutive months (yes, months). While a correction to the 80 level is still possible in the short term, an eventual move to the upside is now more likely than not. The closest target level seems to be slightly above 85 and although the 90 level could be in the cards as well, for now, we will focus on the first target level at this time.
The situation in the United States has not improved dramatically and the value of the dollar will have to go down eventually because of the massive amounts thereof that were created in the recent months and years. However, please remember that the U.S. Dollar Index is a weighted average of currency exchange rates, so if other currencies depreciate faster relative to tangible assets such as gold, the U.S. Dollar Index could actually rally. Another possibility is if the U.S. situation is bad but it is worse everywhere else, the index could also rally. Anyway, the above chart suggests the U.S. Dollar Index will move higher in the weeks ahead, though not necessarily immediately.