Ladies And Gentlemen, Mr. Dollar Is Back

Previously dismissed, the USDX may now be back with a vengeance. Sentiment is swinging away from shorts and there is an uncanny historical pattern.

With a potential bearish pattern already broken, the USDX is resuming its journey northward. And why is it geared to do well? Is it because the U.S. economy is ripping head? Definitely not - that’s not happening. It’s rather because other regions (think Europe and Japan) are doing even worse.

The dollar’s imminent rise doesn’t mean that gold can’t still experience some very short-term upswing, but for the medium-term, the precious metals continue to face bearish headwinds.

With the greenback laying back and enjoying a well-deserved Easter vacation, gold, silver, and the gold miners avoided a dollar drama for at least another day. However, with the USD Index working to regain its supremacy, along with investors’ respect, the ‘death of the dollar’ narrative has quietly dissipated from the investing zeitgeist.

Case in point: the USD Index has broken above its monthly declining resistance line and has already made four new highs since the New Year. More importantly though, because the precious metals have a strong negative correlation with the U.S. dollar, the upward momentum has coincided with an 8.78% drawdown of gold, a 6.18% drawdown of silver and a 6.41% drawdown of the GDX ETF.

Please see below:

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And showing no signs of slowing down, with a well-rested USD Index itching to get back to work, we could see ‘business as usual’ in the coming days. On Apr. 2, I warned that a short-term correction could usher the USD Index back to its March high.

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That’s exactly what happened yesterday (Apr. 5).

However, with the corrective culmination approaching the finish line, the USD Index remains poised to resume its uptrend.

Adding to the optimism, the tide has already gone out on a sea full of USD Index shorts. And because Warren Buffett once said that “only when the tide goes out do you discover who's been swimming naked,” highly leveraged speculators could be the next to follow.

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Disclaimer: All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be ...

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