Let’s take a look at the current situation: the previous drop lasted 200tradedays and there were41 to 42 trading daysbetween the final bottom of the USDX and the short-term reversals of gold and USDX. Comparing this to the final USDX bottom, we get7 to 8 trading days.
Applying the above percentages to the duration of the most recent medium-term decline in the USD index provides us with the following:
18.02% – 19.79% x 200 trading days =~ 36 – ~ 40 trading days
3.53% – 5.65% x 200 trading days =~ 7 – ~ 11 trading days
The above estimate of around 36-40 trading days almost perfectly matches the current 41-42 days delay, and the estimate of around 7-11 trading days almost perfectly matches the current 7-8 trading day delay. trading days.
In other words, the analogy to the 2018 performance doesn’t just remain intact – it actually perfectly confirms the validity of the current corrective recovery. Again, this is most likely a pullback, not a big trend reversal.
Likewise, a potentially bearish trend that I have watched – where the price action of the USD index from July to October 2020 mirrored that of the price from December 2020 to February / March 2021 – has officially been broken . With the mid-term breakout of the USD index prevailing over the former, the potentially bearish pattern has been invalidated and the USD index is likely to continue its ascent.
But to what end?
Well if we look back to 2020 the USD index has attempted to regain its previous highs. But in the absence of upward momentum, failure was followed by a sharp downward movement. Today, however, the USD index broke past its previous highs and the greenback verified the breakout by consolidating, retreating to previous lows and rising again. Now, the USD index is visibly above its previous highs .
Taken together and given the size of the 2017-18 recovery , ~ 94.5 is probably the first stop for the USD index. And in the coming months, the USDX will likely break above 100 at some point in the medium to long term.
In conclusion, the USD index has moved from the challenge stage to the crowd conquest stage. And with the momentum building up and the adrenaline rush, it’s only a matter of time before the USD Index catches another hay farmer. Additionally, given the negative correlation of precious metals to the US dollar – combined with the fact that techniques, fundamentals and sentiment now overlap with the greenback – an uplift could leave gold, silver and mining stocks battered. and bruised. However, after a difficult period of soul searching, precious metals will once again return to the heavyweight championship. Or, if you want to put it in more technical terms, gold, silver and miners are likely to start a massive rally, but only after visibly declining first.
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Przemyslaw Radomski, CFA Founder, editor-in-chief Sunshine Profits: An Effective Investment Through Diligence and Care
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