The price movements that followed were not small either. Conversely, the USD index usually rose significantly in the months following when open rates moved to very low levels.
For example, this happened twice before the powerful rally of 2014 – 2015.
Some might say that last week’s rally was significant. That’s right – it was the biggest rally we’ve seen in a long time. However, if we take a broader perspective and look at what is actually happening in the market, we see that the USD Index rally has probably only just begun.
In the previous cases, the jump in volume was not that noticeable. This most likely means that the short-covering mechanism was not as deep as it has been recently.
Why is this important?
Because for example, the biggest rallies usually start (or end) with short squeezes. The parties that suppressed the price (by shorting the market) are exiting the market, allowing it to rise higher, but so far the regular buyers – those who simply want to go long – are not entering the market yet. It’s later when those investors come in, fueling and extending the rally.
This means that what we see on the chart (that 80% accuracy) is likely to be true and there will likely be a very big rally here.
This obviously has profound implications for virtually all other markets, including precious metals.
The consequences for goldSilver and mining stocks are the obvious ones: they’re bearish, because precious metals prices won’t rise while the currency they’re priced in soars. Sure, it can happen from time to time, but… Gold has already achieved its upside target based on the Fibonacci extension technique, and silver has already canceled out its move to new highs (yes, another silver fake-out) . Don’t get me wrong, there are (just my opinion, not investment advice) excellent long-term prospects for silver, but I don’t think it will rise right away.
The surging USD index could also be what triggers a stock market sell-off. For now, stocks remain near all-time highs, but as exports become more expensive for foreign buyers, the U.S. economy — and stocks — could take a hit.