DOLLAR INDEX - Unwind of EUR/USD Longs

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Gun to the head, the price action of today could only be described as the unwind of the Long Eur/Short Usd trade, as the head of the European Central Bank (ECB) lowered his hawkish tone, sending investors out of a trade that had priced-in multiple rate increases and tightening measures going forward as a way to battle inflationary concerns.  

Open interest measures the amount of positions that are being started, whether long or shorts, that are still outstanding and that have not been offset.  An increase in open interest, along with a move in one direction gives an indication of fresh new money being put to work.  That might not be the case today, since the outlook for the Buck has not changed, and investors are not finding safety on the Greenback due to in-house issues like a National Debt Ceiling increase compromise by congress and balancing the books.  

Dollar strength, is bearish for commodities, no wonder why the fall in precious metals and Oil, as the picture for the US currency got a little better not due to change of fundamentals in the Fed policies but rather deterioration of fundamentals in other markets, in this case in Europe.  So keeping this in mind, the rally seen today in the Dollar Index should be short lived and the return of the domestic fiscal worries will determine the fate of the US currency going forward.

SILVER - How much and how long can the metal go down?

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A lot of people are wondering just how much Silver can go down or for how long, before we return to new highs.  It would be fair to look at what we do best, and that is looking in the past, the previous performance when the metal is under selling pressure.  One could argue that the conditions and reasons for the last major decline at the beginning of 2011 are not the same as the ones in todays market, true.  But keeping in mind that corrections are what they are, let's take a look at what happened back then.

Silver reaches a new 31-yr high of $31.29 on January 3rd 2011, and over a period of 24 days it declines all the way down to $26.315 on January 27th 2011, a drop of about $4.975/oz or 16%.  It took 45 days from January 3rd to February 17th for Silver to retake the previous high and to never look back.

The higher volatility in today's market that can make silver drop 10% in minutes or hours, can also make it recover at the same pace, only when the candles are being printed on the charts then we will know how history will repeat itself this time around. 

DOLLAR INDEX - Inverse Head & shoulder pattern, reversal warning !

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Potential reversal shown on the chart, as we spot an inverse Head & Shoulder pattern on this 60-min chart of the June Dollar Index futures contract.  However, it's not over until the fat lady sings, we need to break above the descending neckline to confirm the technical pattern.  We are seeing, however, a sell-off across the board on risk assets as a confirmation of this awakening of the dollar.  When identifying a Head & Shoulder reversal pattern is important to note the divergence of the momentum indicator, as it's indicated on this chart, the price went with lower lows and yet the momentum went opposite with higher lows. 

SILVER - Trendline supporting since mid march

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Technically speaking, the more a trend line holds as support or resistance then the more relevant this line becomes to traders, and also signals entry points for long or short positions depending on the role of the line.  As market watchers, we analyze the past performance and behavior of the underlying commodity to understand or better yet forecast the next move and try to profit from it.  As we can observe from this 3-hr (180-min) chart of the May Silver Futures contract, the shown trend line has worked as support and effectively bounced off any proximity of the price action in many instances, had you started long positions on any of these encounters, you would had profit in all cases.  The question of course, as we have another enocunter, is then whether we take another long position at this junction or wait to see if the line is finally broken signaling the end of the upward move and switching our bias to the downside.

OIL - Needs to close above 114 level to confirm technical break out

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On April 10th Oil printed a temporary high of 114.06 before falling all the way down to the 106 level that supported the price twice to form a double bottom reversal pattern, 110.70-110.80 also worked as a pivot with a double retest before breaking higher and becoming the new support and ultimately breaking higher outside of the range.  However, in order to confirm this technical break out we need to get a close above 114 by the end of today's close.  This bullish close would open the path for new post-2008 highs challenging initially 116 and then 120.