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USD Bears Are Fresh Out Of Honey Pots

By Sunshine Profits (Przemyslaw Radomski, CFA)CommoditiesSep 20, 2021 11:57AM ET
www.investing.com/analysis/usd-bears-are-fresh-out-of-honey-pots-200602474
USD Bears Are Fresh Out Of Honey Pots
By Sunshine Profits (Przemyslaw Radomski, CFA)   |  Sep 20, 2021 11:57AM ET
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The declining medium-term outlook for gold, silver and mining stocks will eat away at the honey pot of U.S. dollar bears. Get ready for bee stings.

With headline after headline attempting to knock the USD Index off of its lofty perch, I warned on Sep. 13 that U.S. dollar bears will likely run out of honey sooner rather than later.

I wrote:

While the USD Index was under fundamental fire in recent weeks, buyers eagerly hit the bid near the 38.2% Fibonacci retracement level. And after positive sentiment lifted the greenback back above the neckline of its inverse (bullish) head-and-shoulders pattern last week, the USDX’s medium-term outlook remains profoundly bullish.

More importantly, though, after the USD Index rallied by 0.63% last week and further validated its bullish breakout, gold, silver and mining stocks ran in the opposite direction. And with the divergence likely to accelerate over the medium term, the swarm should sting the precious metals during the autumn months.

Please see below:

US Dollar Daily Chart.
US Dollar Daily Chart.

Conversely, if the USD Index encounters resistance as it attempts to make a new 2021 high, gold, silver and mining stocks could enjoy an immaterial corrective upswing. However, the optimism will likely be short lived, and it’s likely a matter of when, not if, the USD Index reaches the illustrious milestone.

Equally bullish for the greenback, with the USD Index’s technical strength signalling an ominous ending for the Euro Index, I warned on Sep. 13 that the latter faced a tough road ahead.

I wrote:

While I have less conviction in the Euro Index’s next move relative to the USD Index, more likely than not, the Euro Index should break down once again and the bearish momentum should resume over the medium term.

And after the Euro Index sunk below the neckline of its bearish head-and-shoulders pattern last week, lower lows remains the most likely outcome over the medium term.

Please see below:

EURO Index Daily Chart.
EURO Index Daily Chart.

Adding to our confidence (don’t get me wrong, there are no certainties in any market; it’s just that the bullish narrative for the USDX is even more bullish in my view), the USD Index often sizzles in the summer sun and major USDX rallies often start during the middle of the year. Summertime spikes have been mainstays on the USD Index’s historical record and in 2004, 2005, 2008, 2011, 2014 and 2018 a retest of the lows (or close to them) occurred before the USD Index began its upward flights (which is exactly what’s happened this time around).

Furthermore, profound rallies (marked by the red vertical dashed lines below) followed in 2008, 2011 and 2014. With the current situation mirroring the latter, a small consolidation on the long-term chart is exactly what occurred before the USD Index surged in 2014. Likewise, the USD Index recently bottomed near its 50-week moving average; an identical development occurred in 2014. More importantly, though, with bottoms in the precious metals market often occurring when gold trades in unison with the USD Index (after ceasing to respond to the USD’s rallies with declines), we’re still far away from that milestone in terms of both price and duration.

Moreover, as the journey unfolds, the bullish signals from 2014 have resurfaced once again. For example, the USD Index’s RSI is hovering near a similar level (marked with red ellipses), and back then, a corrective downswing also occurred at the previous highs. More importantly, though, the short-term weakness was followed by a profound rally in 2014, and many technical and fundamental indicators signal that another reenactment could be forthcoming.

Please see below:

USD Weekly Chart.
USD Weekly Chart.

Just as the USD Index took a breather before its massive rally in 2014, it seems that we saw the same recently. This means that predicting higher gold prices (or the ones of silver) here is likely not a good idea.

Continuing the theme, the eye in the sky doesn’t lie. And with the USDX’s long-term breakout clearly visible, the wind still remains at the greenback’s back.

Please see below:

US Dollar Long-Term Chart.
US Dollar Long-Term Chart.

The bottom line?

Once the momentum unfolds, ~94.5 is likely the USD Index’s first stop, ~98 is likely the next stop after that, and the USDX will likely exceed 100 at some point over the medium or long term. Keep in mind though: we’re not bullish on the greenback because of the U.S.’ absolute outperformance. It’s because the region is fundamentally outperforming the Eurozone, the EUR/USD accounts for nearly 58% of the movement of the USD Index, and the relative performance is what really matters.

In conclusion, the USD Index’s sweet performance left sour tastes in the precious metals’ mouths. And with the former’s bullish breakout signalling an ominous future for the latter, gold, silver, and mining stocks will likely confront new lows over the medium term. However, once the autumn months fade and the winter weather approaches, buying opportunities may present themselves. And with unprecedented monetary and fiscal policy likely to underwrite new highs in the coming years, the long-term outlook for gold, silver and mining stocks remains extremely bright.

USD Bears Are Fresh Out Of Honey Pots
 

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USD Bears Are Fresh Out Of Honey Pots

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Comments (8)
Vi Ma
Vi Ma Sep 21, 2021 3:45AM ET
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USD will not cross 97 in next 6-9 months. Post that the unless the Fed stars raising taxes, if st all it is able to, it shall not rise. It will be the peak for dollar for next several years ! Buy GOLD at 1500$ as might not drop below 1450 no matter what.
Kristof Naessens
Kristof Naessens Sep 21, 2021 3:39AM ET
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Dollar is compared to other fiat currencies who are also printing like crazy. Spending trillions and trillions in stimulus and buying your own bonds and securities with fresh printed money can only work for a period of time. Raising the debt ceiling over and over again... The US stock market is a overvalued ponzi scheme only held up straight by the money printing. On the same time you have Fed officials trading markets with insider info, same for congress. What could go wrong???
Millennial Metals
Millennial Metals Sep 20, 2021 11:51PM ET
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Depends what you measure the dollar against
milena villa escobar
milena villa escobar Sep 20, 2021 6:45PM ET
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The charts are the bullet you put in the gun to shoot yourself in the head with. You just see what you want to see. Buy gold and hold. Now it's just a question of when
dixon pinfold
dixon pinfold Sep 20, 2021 4:19PM ET
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Charts are not the answer to everything. They're closer to the shadows on the walls in Plato's cave than they are to reliable navigation aids. I'd rather hear some more about world economic, business, and political factors. To me, technicals are an add-on to the big picture.
Steffen vdm
Steffen vdm Sep 20, 2021 4:19PM ET
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The past 18 months has taught us that economic, business and political factors don't mean anything these days. As long as free money flows into the system, markets will go up. No matter what.
Sultan rival
Sultan rival Sep 20, 2021 2:13PM ET
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I wonder where are those people mocking with his analysis, are they gone… noobs coming and making comments and then disappear… no one can predict market perfect, but as far as I am following him he is right
milena villa escobar
milena villa escobar Sep 20, 2021 2:13PM ET
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Until he's wrong
Bernd Langer
Bernd Langer Sep 20, 2021 2:13PM ET
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I am tired of commenting each and every of his pieces, no news there. Still uphold that Gold will be at 1900 before end of the year. How long have you been following Radomski? I guess not very long ...
Meru Pet
Meru Pet Sep 20, 2021 1:05PM ET
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i appreciate your analysis but i think gold is gonna go up just because there is some room to go up. Today IAG went up... because it was very cheap and everything else was expensive enough to justify a drop. Same with gold. Palladium goes down (-8%) but gold goes up. It is safer to buy cheap stuffs and gold is here to stay... So i certainly don't have your skills and your economical education, but i think gold is gonna go up a bit (may $70)
Paul IllTradeThese
Paul IllTradeThese Sep 20, 2021 12:33PM ET
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Don't let this guy lie to you. The USD has a massive Head and Shoulders (NOT INVERSE) on the daily candles. He says the move will be upwards for the fall but the technical analysis from everyone else says the exact opposite. This is the high of the right shoulder and we have about 1 more month until we take the ride back down to 90 DXY. Don't get caught in a three month swing trade based on his analysis. I've been bearish precious metals all summer but this fall is quite different. The turning point is not the upcoming winter 3-5 months from now. The turning point is less than 1 month from now.
Erin Mateo
Erin Mateo Sep 20, 2021 12:33PM ET
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Probably this coming Fed FOMC will be the make or break for both Gold and DXY
 
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