US Dollar Index (DXY) Didn’t make a significant comeback despite my expectations Posted before this Month. The minor bounce was short-lived as the price quickly reversed all gains and then updated the low.
The downtrend is so strong that DXY may fit within a very narrow orange channel. However, I think we still need a visual correction, because the new signs are dangerous.
The primary alert comes from the RSI indicator as it shows a bullish divergence with higher lows contrasting with lower valleys in the price chart. There is another indirect signal in the price chart; The new valleys could not touch the bottom of the orange channel amid a lack of sufficient bearish momentum.
The price must break the orange downtrend to initiate a correction. A potential retracement area (orange rectangle) lies between 91.10 and 92.00 (38.2%-61.8% Fibonacci Retracement level). It sits on the upside side of the black downtrend.
This time I added the correlation ratio of DXY with Gold and Silver respectively to update the view. Both metals have a strong negative correlation, and gold has a higher negative reading than silver.
Gold Finally managed to break out of the prolonged downtrend (Grey), which created a major complex correction (BC part).
There are no strong signs of an upcoming correction in the charts. However, firm inverse correlation with the dollar index and overbought conditions in the RSI sub-chart can be a precursor.
Recently, the price is stuck on the upside of the Blue Uptrend Channel. If gold follows the dollar to initiate a correction, watch the orange rectangle for a potential retracement zone between $1809 and $1758. The RSI should return to the 50 level and maybe break it down a bit.
This correction could slide to the top of a broken downtrend. This will chart a regular breakout-pullback pattern.
silver Already falling from the top of the blue uptrend. So has it almost reached the critical level as the RSI. This is why the correlation ratio with the DXY is worse for silver as it started to come back earlier.
To confirm the correction, the price must break the blue uptrend. The retracement area of the 38.2% -61.8% Fibonacci levels is also marked with an orange rectangle here. It lies between $26.85 and $25.68%.
Why is silver falling before gold? This is a fairly common situation as the metal has high volatility, and the market itself is thin amid little liquidity. Therefore, it is wise to book profit in silver first till this last buyer absorbs the first profit takers.
Let’s see if the signals in the chart turn out to be correct about the correction.
INO.com Contributor, Metal
Disclosure: This contributor has no position in any of the stocks mentioned in this article. This article is the opinion of the contributor himself. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than INO.com) for their opinions.
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