If the USD Index is starting a huge rally, just like it’s likely to based on where we are in the series of interest rate hikes, then it’s a good idea to check what the previous big USD rallies looked like and look for similarities. In this way, we could spot trading opportunities (and look for confirmations at particularly important moments / price levels) and even if we don’t, the above should still prepare one for what’s to come and one would not panic in light of an event that would appear a game-changer on a day-to-day basis, but would be normal when looked at from the long-term perspective.
We marked eight big rallies on the above 20-year chart. They vary in terms of length, size and sharpness, but there are a few similarities between them. The rallies took between (approximately) 30 and 45 weeks, so the current possible rally could end between April and July 2018, but that’s not something that has implications for the nearby days and weeks. However, analyzing the beginnings of the big rallies has such implications.
The first part of six out of eight big rallies was characterized by a rather large pullback. In 1998, 2005, 2008, 2011, 2014 and 2016 the biggest, most stable and bullish part of the rally took place only after an initial correction that erased more than half of the very initial rally.
In the remaining two cases, the correction was still present, but it was not that significant.
So, should we expect the current rally to continue much higher without a bigger correction? No, such a correction would be something rather likely and normal. If the 50% correction is to be the minimum range for the pullback and the USD tops at about 96, then we can expect it to decline to about 93 – 93.5.
That would not be a small move, so adjusting one’s trading positions might be a good idea should it become very likely. The same is the case for the positions in the precious metals market as a bigger correction in the USD would likely translate into a visible correction in metals and miners.
Summing up, even though there are multiple signals pointing to lower precious metals prices in the coming months, it seems likely that after an additional decline from here, the precious metals sector is going to correct to the upside. While we keep the detailed target prices for precious metals and miners for our subscribers, we can say that one of the bigger factors that we will be monitoring for confirmations is the value of the USD Index and it appears likely that the mentioned reversal will take place when the USDX moves close to the 96 level.