The dollar continues its march higher and is now finally about to meet some legitimate resistance in the zone drawn above. I expect the dollar to retreat from the zone in the 98 area before heading back up. This zone has been tested only one time and the move down was very strong (the wick in the zone is circled). I have been long the dollar against GBP, CAD, JPY, and EUR the last couple of weeks and will close those out or at least heavily reduce size after DXY gets above 98 and look to go long again around 97. In the equity space I will be looking at the charts for precious metals and miners to try and couple some good buy zones in metals with the DXY hitting 98. Commodities should get a decent bounce once the dollar hits this supply area overhead. I am a firm dollar bull but will like to trade around this little pullback I expect from this zone. Looks like we will see what happens here pretty soon. Stay tuned.
GOLD DECEMBER CONTRACT - GCZ16
My current target for buying gold is at $1,225 but this chart (December contract) has me a bit nervous. I love the way gold gapped up so strongly on June 3rd (jobs report Friday) but what makes me nervous is how worn out this zone is getting. As you can see from the daily chart, price has spent a lot of time in this area and it is easy to imagine gold getting through and heading back to prices last seen in early 2016 ($1135 for me). I always see a chart like this as a boxer who has taken 25 solid jabs. Sure he is still standing, but every jab makes the next punch more likely to take him down. It was easy to buy this level after you just confirmed gold is headed higher or on a 5% pullback; this time it will be on an ugly 10+% pullback. We may find less excited buyers here this time. I think the way to play this is to go long in this area expecting a bounce but keeping a stop just beneath this zone and moving it up if price bounces, in case it fizzles and heads back lower. If we move out of this zone and I make money and get stopped out before a retest, I will not go long here again. The dollar is in the driver's seat right now for gold and everything else, which I covered here, and it just got more interesting.
The dollar blasted above its 200 day this week and blew through and closed above the trend line I have, looking very bullish. On Friday however, as you can see, the $DXY closed red just beneath that trend line. This makes for a very important upcoming week for the dollar. I still believe we will move higher, up past the 98 level, and with that we will see gold move into the June lows if not down to February.
BONUS CHART: SILVER DECEMBER CONTRACT - SIZ16
Silver looks much more attractive at its June 3rd area. I will buy at $16.75 anticipating a bounce out of the zone I have drawn out. Silver has a great base between a couple rallies and this zone was not jabbed to death like gold. Seeing a much stronger zone for support for silver than gold leads me to an obvious conclusion: the gold to silver ratio is about to break down. As you can see below, the gold to silver ratio has been in a steady uptrend in a well-behaved channel. I expect this trend line to break and the ratio to fall from the 70s to at least the mid 60s.
GOLD TO SILVER RATIO - 10 YEAR CHART
Looks like the dollar just broke a key trend-line and may be about to take off. It is doubtful that the dollar makes a meaningful move back down until it gets above the 98 level. I expect it to run into trouble between 98.15 and 98.58 (shaded in red). The dollar has closed above its 200 day moving average every day this week and closed above the trend-line that goes back to last year. This should continue to put pressure on metals and may even begin to pressure crude oil when investors come to grips with the fact that the OPEC "deal" is meaningless and the supply glut is alive and well.