USD Momentum Thrives & Silver Break to Decade Lows

The U.S. Dollar strength is a development which the WET blog has been closely monitoring closely (click here for July article and here for January article of this year). Strong weekly candles tower above the consolidation (orange box) on the USD index chart. Is there anything that can stop this strong momentum?

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When looking at support and resistance on the monthly chart traders can quickly spot various resistance levels which could cause problems for any trend and momentum continuation. Various trend lines and a top stand in the way before the USD has more wide open space (green field) to accelerate to the next levels. After that the most problematic tops (red boxes) are quite a distance away. Whether price can break above these 2 resistance zones remains the question and is impossible to predict. One thing seems certain: the trend versus support and resistance clash usually guarantees fireworks and a spectacle.

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I will provide my opinion on both of these resistance zones:

a)      Immediate top and trend lines: in my opinion there is a very good chance of price breaking through this resistance. Of course price typically will consolidate or pause at this top, I personally am expecting a continuation break because the strong momentum displayed. The weekly candles will keep building on a bull run (go into the green field on the USD Index) and the EURSD price will break through the 1.2750 support for instance.

b)      Upper resistance levels (red / dark red): the break of these lines is a tossup. Price is too far away from these levels to judge whether sufficient steam is remaining in the bull run. At the moment though I am leaning towards a USD break of this zone as well. That would send the EURUSD for instance below the 1.20 support zone. If price however does respect the lower resistance line (red) a bigger wedge could still be a valid chart pattern (purple circles). In that case the EURUSD could test and bounce at the lower 1.20 zone.

c)       From a Fibonacci point of view price is heading towards the -0.272 and the -0.618 Fibonacci targets after a 50% Fib bounce.

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XAGUSD  is making a very tight consolidation zone the last few months. The monthly candles are small in relationship to the candle of the previous 3 years. A break below the triple bottom has a decent chance of price accelerating towards another new low. XAGUSD, which peaked in April of 2011 at 49.75, would then – only 3.5 years later – be breaking a low of 18.20 for more one bearish fall. Price could then fall towards the next layers of support (blue zones).

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When comparing XAUUSD with XAGUSD, the charts clearly show that the XAGUSD bearishness was stronger: price fell a lot more on that commodity pair. Whereas XAGUSD retraced a large part of the upswing, XAUUSD on the hand did not retrace half of the rise. Despite that difference, the XAUUSD is building a consolidation zone after a bearish impulse. This pair too could have a bearish breakout once the bottom of the zone (green) breaks.

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How do you see USD, XAG and XAU?

Let us know your views and please share your charts.

Happy Trading

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