Gold rallied yesterday, right before its turning point, and reversed its course before the end of the session. Precisely, even before the US session started. Miners reversed as well, after failing to move back above the late-2016 bottom. With the critical situation in the USD Index, and gold miners’ short-term underperformance (so far this week gold is up by $8.10, while the HUI Index is down by 0.2), it appears that things will get very hot for the precious metals market shortly.
Before discussing the above, let’s take a closer look at what happened yesterday and what’s happening in today’s pre-market trading in the USD Index.
Forex Implications
The remarkable thing about the reflective nature of the recent price movement is that it is so similar. The October / November 2017 top is like the August 2018 top as they both took form of head-and-shoulders tops. We marked them with red. What’s even more profound is that outside shoulders of the top above-mentioned formations (left in 2017 and right in 2018) were the inside shoulders of the inverse head-and-shoulders patterns. We marked them with green. The reflective nature of the pattern is even clearer than we thought.
Now, the current inverse head-and-shoulders pattern has no direct implications yet as the price has not yet broken above its neck level, let alone confirmed such breakout. But, in light of the striking similarity between the 2017 decline and this year’s upswing, it’s likely that this formation will be completed.
The completion of the local (green) inverse head-and-shoulders pattern would provide us with the target at about 98.4, which means that it would likely result in a breakout above the medium-term inverse head-and-shoulders pattern that has its own target well above 100 – at about 103. In other words, based on the above-mentioned patterns, a move to the 2017 high in the USDX appears likely.
The above rally would also perfectly fit the long-term analogies in the USD Index.
As you can see on the above chart, not much happened yesterday. But, in today’s pre-market trading, the USDX moved above 96.30, which means that we are seeing a breakout above the local inverse head-and-shoulders pattern – the one that points to a target of 98.4 and that is likely to lead to the completion of the bigger inverse H&S and even bigger rallies.
The move above 96 materialized only a few hours ago, so it’s far from being confirmed. Therefore, the implications are not yet strongly bullish, but they are definitely present. The implications for the USDX are already bullish even though they are not very strong for the short term just yet. The opposite is the case for the precious metals sector – the PMs are likely to decline along with the rally in the USD Index.
