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USD index breaks out above long term resistance

Commentaries & Views

Although gold continues to hold up relatively well despite having given up $1,850, silver’s rapid descent accelerated with the metal falling below support at $21.50. The technical picture for silver favors that lower prices may yet lie ahead, with support down toward $19.60, should dollar strength accelerate. Platinum seems to have found stiff resistance between $985 and $1000.

Relative USD strength is persistent, as the index now approaches 105. With yesterday’s CPI coming in hot, the index has broken above the resistance we presented last week; the updated chart is shown below. Will this turn out to be a false breakout?

The U.S. 10-year yield has softened from its high of over 3% and is currently back around 2.8%. Has the U.S. treasury market already done the bulk of the FED’s job for it? With extremely bearish sentiment and positioning abound, contrarian bulls in any asset denominated in USD have to consider that the stage is set for a relief rally at the least. Bears who rode short positions into profit may be considering taking some off the table. Seasoned traders will recall that extreme fear in sentiment (now reflected in positioning) is the fuel for a move in the opposite direction. Whether a move up can be sustained, however, is yet TBD.

Thanks and have a great day,

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