USD Index and Its Short-term Downswing
On Monday, we wrote that the decline to the February low could be seen, but that we doubted it. The reason was that the USD was after breakouts above the declining short-term support / resistance lines, so a move back to one of them seemed more likely. The implication is the above red triangle target area.
So far, the USD Index hasn’t moved to it, stopping at the late February lows. But does it have to move lower? Not necessarily.
Let’s keep in mind that the USD Index is above a combination of very strong support levels and the big picture remains bullish. Consequently, the surprises are likely to be to the upside.
Still, with looming comments from Mario Draghi and the employment numbers, it seems that we could see some short-term volatility before the end of the week.
Will the USD decline further? It’s possible, but not inevitable. Will gold, silver and mining stocks rally further? They could, but we have already seen bearish confirmations and our target areas were reached, so the outlook is already bearish. It could get more bearish (or it could be invalidated) if the USD Index moves significantly lower in the following days and PMs refuse to really react to this sign. If this is the case we’ll send follow-up alerts.
Summing up, a major top in gold, silver and mining stocks is probably in, and based on the signs that we saw yesterday, the follow-up top could also be in. The key short-term signs: silver’s outperformance and miners’ underperformance point to it, but at the same time we should be prepared for another move lower in the USD and higher in PMs due to Draghi’s comments and the upcoming jobs report. Either way, it shouldn’t take long for the precious metals sector to reverse its course and move lower once again.