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Silver Breakdown Hints at USD Turning Point; EUR/USD, USD/CAD Not Done

Silver Breakdown Hints at USD Turning Point; EUR/USD, USD/CAD Not Done

2014-09-24 11:00:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- Silver/XAGUSD fall through support signals turning point.

- EURUSD may push lower again; USDCAD eyes inv H&S.

- Have a bullish (or bearish) bias on the US Dollar, but don’t know which pair to use? Use a USD currency basket.

During August and early-September, the rise of US Treasury yields neatly coincided with an already-bullish landscape for the US Dollar, proving to be further fuel to the fire. Yet over the past two weeks, the greenback has persisted as a top performer while long-end US yields have come back in after their brief jump:

Silver Breakdown Hints at USD Turning Point; EUR/USD, USD/CAD Not Done

The 20-day correlation between the Dollar Index (DXY) and the 10-year US Treasury Note yield has fallen from +0.632 on September 8 to +0.376 today. Evidently, given the US Dollar's continued elevation, yields are acting as a one way street for the greenback: higher yields help while lower yields have thus far been laughed off.

The attitudinal shift with respect to the US Dollar is apparent elsewhere. Even as US yields have generally remained lower in 2014 as evidenced by the flatter yield curve YTD, part of the reason has been the jump in short-term rates, not just lower long-term rates.

The recent breakdown in Silver coupled with signs of a market more willing to deal with a strong dollar while shrugging off what should be negative forces fits in with the market's evolving sentiment.

See the brief video above for what the technical breakdown in Silver means for the majors such as EURUSD and USDCAD over the coming days.

Read more: What Levels Would Yield EUR Rally? Watch this EUR/USD EMA

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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