What’s inside:
- Silver rallying while dollar weakness sets in
- US Dollar Index (DXY) looks poised for more weakness, while silver faces stiff resistance
- Sitting on hands for now, scenarios of interest described
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On Tuesday, we discussed how the inverse correlation remains quite strong between silver prices and the US dollar (21-day = -88%, only up from -96%), while the negative correlation between gold and the dollar has undergone reversion to the mean (21-day = -48%, up from -98%). Silver has clearly demonstrated relative strength versus gold. A sign of caution from the bear-side of the tape we admittedly should have taken more seriously.
The US Dollar Index (DXY) has fallen in recent sessions from a ‘head-and-shoulders’ top (visible on the 4-hr), trading back below the 2015 highs it overcame in mid-November. It has room to go before support is met at the October high at 99.12 (currently trading at 99.89). If the DXY continues to drop towards support, then silver is likely to continue pushing higher, but…
It must take out the low 17s (~17.30/11) resistance area we've been talking about for several weeks. A pullback during June and the low in October have created a barrier of significance worth attention. It’s challenging this area now, so if the dollar is to continue lower it looks like we will see silver trade above this pivotal area. Whether it can hold or not is another story. All rallies since the July spike high have been sold quickly after finding a high.
Silver: Daily
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For now, we are left feeling a little stuck here. As a rule, under no condition do we buy resistance, but without seeing a solid rejection of overhead levels we are left without wanting to be short at this time. A spike high and decline back below the low 17s would pique our interest from the short-side, while a solid break above resistance and subsequent hold as support may be of interest for a long trade.
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---Written by Paul Robinson, Market Analyst
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