Well, it is dramatic to a nerd like me. Those of you with reasonably normal lives may have other things to see to.
With reference to yesterday’s update, interestingly, the US dollar index has poked through objective #2, a significant caution point (for anti-USD markets). Point #3 is what I view as the gateway to breaking the downtrend and resuming the bull market, unless USD is going to push the limits and test the March high, which not surprisingly preceded lows in other markets (from commodities to stocks to precious metals), as the gateway.
However, the Gold/Silver ratio (GSR) is not playing ball with the strong USD, as it continues to drop.
The implication in the GSR’s divergence is that USD is not giving a true signal of waning market liquidity and could be on a bull trap (whereas it sprung a bear trap back in July with a false breakdown). Or the USD could rally as ‘a currency thing’, and not a market liquidity thing. But the bottom line is that it would be highly unusual for a bearish broad market situation to come about with silver out-performing gold so handily.
Maybe GSR will get in line with USD, or maybe USD will get in line with GSR.
I am going to be out all morning and possibly much of the day. As it stands now I may just sit on my hands for a second straight day until this divergence resolves one way or the other. At the moment I have no temptation to retake any short positions.
What if USD (DX really) is just reflecting the difference (and direction of it) between yields on 10Y Bonds and Bunds (EUR is major component of DX basket, and Germany is major component of Eurozone)?
Agree. Generally, high yields – and high real yields – are supportive.