A head-and-shoulders pattern in the US dollar chart has broken down and it looks like a big fall is coming for the greenback (see chart below). The warning indicator is rising gold and silver prices, up three and nine per cent respectively last week, a trend that is likely to continue with some volatility.
In his latest commentary chartist Clive Maund said: ‘As we can see on the 8-month chart for the dollar index its drop last week has brought it down to a clearly defined important support level, with this sharp move towards a rising 200-day moving average creating a considerable degree of ‘compression’ that coupled with the support at the current level is likely to trigger a rebound. It looks like a head-and-shoulders top is forming in the dollar.
‘…so a likely scenario here is that we see a rebound short-term which takes the index back up towards the left shoulder high in the 83 area, and such a rebound would of course be the occasion for a reaction back in gold and silver, which should be jumped on as an opportunity to build positions further ahead of the major breakout. Here we should note that the dollar looks very weak so it might not make it as high as 83 before it turns tail and breaks down.’