The US elections are over and since the markets were not surprised by their outcome, there was no significant reaction. It seems that the markets can now return to their previous trends. ButÖ the USD Index is down significantly today, while gold and silver are rallying. Does it mean that the trend in the precious metals is currently up?

Not necessarily. The US-elections-driven volatility could extend beyond the very initial reaction and itís not surprising to see the move higher in the PMs and miners today and along with a move lower in the USDX. What is interesting, however, is the subtle clue that the relative changes provide.

Gold and silver are practically where they were 24 hours ago, while the USD Index is considerably lower.


USD Index and Its Inverse H&S Pattern




Being about 0.50 lower today (at the moment of writing these words), the USD Index is already visibly below the previous November low. This is a clear sign of weakness of the precious metals sector. The PMs should be rallying, but they are not.

But doesnít this move invalidate the recent inverse head-and-shoulders pattern?

In a way it does, and in a different Ė more important Ė way it doesnít. The line that weíve been featuring on the above chart and the one thatís being broken today (the rising red line) is based on the intraday highs. As you may recall, the closing prices are more important and thus the formations based on the closing prices of the USD Index can be viewed as more important as well. The neckline of the inverse head-and-shoulders pattern thatís based on the closing prices is currently at about 95.25. Todayís pre-market low (so far) is 95.68, so the USD Index didnít invalidate the breakout above the inverse H&S pattern in terms of the closing prices. Consequently, even though we may see some short-term weakness in the USD Index (by the way, we cashed in our profits from USD-long forex positions yesterday, before todayís decline), the main trend remains up for the following weeks and months.

Moreover, please note that the reflective nature of the 2017 decline and 2018 upswing remains in place and back in 2017 the USDX moved a bit below the dashed, red line, relatively close to the dashed blue line. Even if the USD Index declines even to the neckline of the short-term inverse head-and-shoulders pattern (95.25), the above analogy will remain intact, and it will continue to favor higher prices in the following weeks and months. The outlook, therefore, remains bullish for the USDX and bearish for the precious metals market.

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