Monday was another day of learning nothing new about the potential break in direction for certain risk assets. This move up or down seems imminent in the somewhat sideways charts of some risk assets and I continue to think it will be driven largely by the direction of the dollar.
While there’s been a bit of divergence more recently between the dollar and its inverse relationship with the risk assets, this departure is minute at best if we consider the seemingly range bound nature of the dollar that I’ve been talking about over the last month or so.
Specifically, I have made the case that the dollar index looks set to trade in a range between about 77/78 and 82/83 over the next quarter or two while the inner range to that broader range is found between about 80 and 80.83/80.89 with a rough mid-point of 80.40. Until the dollar index moves below 80 or above 80.89, I think we may see the precious metals and equities stall in directionless trading with important exceptions found in the commodity complex such as crude oil and soybeans.
This week I’ll examine – and as slowly as the markets are trading – the potential movement of each of the risk assets in relation to the dollar and I’ll start today with those that feel most ripe to break up or down very soon or gold and silver.
First, let’s look at the dollar index over the last month.
As you can see in the chart above, it has traded mainly in the range found between about 80 and 80.89 and the majority of its closing levels are found in that range as is shown more completely at peaktheories.com.
