|
Two weeks ago,
we've posted an essay in which we've analyzed i.a. the Euro Index. We've
stressed that a slight move lower may be seen in the short-term, which
will likely be coupled with a corresponding move higher in the USD Index. This
is precisely what we have just witnessed, so without further introduction, we
will let you know how low can it take the Euro Index and how big rally could
we see in the USD Index. In the latter part of the essay we will provide you
with our very-long-term silver chart.
Let's start with
the long-term Euro Index chart (charts courtesy by http://stockcharts.com.)
We
must begin this week’s technical analysis section with a comment on the
long-awaited correction, which alas is clearly seen in the week’s
long-term Euro Index chart. After a move above a key resistance level,
confirmation did not occur, and subsequent days saw a decline below this
level.
In
last week’s Premium Update, caution was suggested and a period
of consolidation was termed likely. “For the short-term we remain
skeptical towards a continuation of the rally in the Euro Index until we see
confirmation for a breakout or consolidation. The latter still appears more
probable.”
Once
again, applying hard and fast rules as part of our technical analysis and
interpretation resulted in the right call rather than unwarranted optimism.
The reason for this comment is that we would like to emphasize the need to
wait for a confirmation instead of chasing the market.
The
short-term Euro Index chart this week provides a clearer picture of the
correction we mentioned above. Note that the RSI has moved below the 50
level and the Euro Index itself is very close to the first Fibonacci
retracement level which is based upon the previous rally. The long-term
declining resistance level will now likely become a support, as it intersects
with the key 61.8% Fibonacci retracement.
This
means that there is a strong possibility that the euro will decline again in
roughly the same amount as we have already seen. This will result in a target
bottom, slightly below or at the 125 level. At this time, it does not seem
likely that the bottom will move to levels seen last June, but we surely
can't rule that out completely. Indications are that 125 is an accurate
minimum target for the current decline. This seems to be about 50% likely
with a 25% chance that the bottom will be above 125 and a 25% chance for
moving below this level.
In
this week’s long-term USD Index chart, we see a slight rally, which was
expected in view of the Euro Index decline. This is consistent with what we
stated in last week’s Premium Update. We identified a possible
profit opportunity for FOREX traders with a rise in the dollar likely.
This turned out to be right on the money.
From a
precious metals perspective, there is little to be said at this time. The
impact of the currency markets this week has been minimal, yet
positive. However, it is still possible that gold and silver will move
higher in the next few days only to move lower once again afterwards. Additionally, it is still likely that the precious
metals sector would decline towards the end of August.
In the
recent past, gold, silver, and mining stocks declined slightly when the USD
Index showed a strong rally. This was followed by a consolidation for the
USD, which coincided with a precious metals rally. All in all, the precious
metals sector has shown strength in relation to the dollar.
Let's
take a look at the short-term chart for more details.
In
this week’s short-term chart, we see a higher, broader and bigger
target for the short-term rally in the USD Index. The strong momentum seen
recently has been surprising and our prior target range has already been
reached. It is possible that the USD Index could move as high as 84 and its
next turning point may be seen relatively soon. A top in the USD index could
correspond to one for precious metals as well.
Other
than the above, the relationship between gold, silver and mining stocks and
the dollar remains unclear at this time. Turning points may coincide, but it
is a situation, which must be continuously monitored. As always, Sunshine
Profits will be up to the task.
Before
summarizing, let's take a look at the big picture regarding the silver market
- since both metals usually move together the below analysis should prove
useful to gold Investors as well.
On the
very-long-term chart this week, emphasis is given to the TRIX indicator,
which has declined somewhat in the past weeks. This is a bullish signal for
the long-term as important developments usually occur after the TRIX reaches
zero. There is a possibility that this level may be reached in the relative
near-term, possible once we've seen the end of the summer decline that we've
described in the full version of this essay.
A
sharp decline in silver’s price could cause a substantial decline in
the TRIX, which would be a healthy and normal development for the market. The
coming decline might appear scary at the first sight, but if it does
materialize - please keep in mind that it's something that will allow the
market to move even higher in the long run.
Previous
"second" rallies for the white metal have often been followed by
declines after silver failed to move above previous highs. After that we've
used to see corrections that took silver much lower - correcting 50% of the
preceding rally. Silver may or may not get this low in its next
decline.
The
current retracement level is based on the 2008 low and the 2010 high. Since
the 2008 decline was generally an unordinary development, the $14 target (as
visible on the chart above at the 50% retracement) might be too low, and
perhaps the $16 level would hold.
Summing
up, last
week’s view for the short term was quite accurate and we now see a
possibility of higher USD Index levels in the coming week. The Euro Index
will likely decline again in the week ahead, continuing the trend, which took
hold during this past week. Precious metals are likely to move slightly
higher in the short term but we remain bearish for the next few weeks in
advance of an expected late summer low in much of the precious metals sector.
Full essay with more details is available to our Subscribers.
Technically,
lower silver prices will be healthy not only for silver but also for gold and
mining stocks as well. We have seen massive rallies quickly follow severe
declines in silver’s price. This may, in turn, eventually lead to
higher silver prices, possibly the next rally would take silver to $25 - $35
area.
To make sure that you are notified
once the new features are implemented, and get immediate access to my free
thoughts on the market, including information not available publicly, I urge
you to sign up for my free e-mail list. Sign
up today and you'll also get free, 7-day access to the Premium Sections
on my website, including valuable tools and charts dedicated to serious PM
Investors and Speculators. It's free and you may unsubscribe at any time.
Thank you for reading. Have a
great and profitable week!
Przemyslaw Radomski
Editor,
www.sunshineprofits.com
|
