Analyzing Today’s Developments in the Dollar and Precious Metals

The dollar popped while gold and the euro pulled back, but with volume so light, I wouldn’t read too much into the move just yet.

Today was a low-volume, relatively uneventful day in the financial markets—almost as if traders are finally stepping back to enjoy the spring weather after a long winter and a turbulent few months. While stocks continued their slow levitation higher, it was precious metals that took a hit, with gold down 1.52% and silver off 0.63%. It wasn’t a dramatic move, but it adds to the ongoing pullback that began about a week and a half ago. In this update, I’ll show you where gold, silver, the U.S. dollar, and the euro currently stand—because it ties directly into a thesis I’ve been highlighting about their interconnection and the directional moves they’re likely to make.

For the past few weeks, I—along with many other analysts and traders—have been closely watching the critical 100 level on the U.S. Dollar Index. This index tracks the dollar’s exchange rate against a basket of major world currencies (not its domestic purchasing power), and the 100 level has acted as a major support level for several years, making it a key line in the sand for global markets. Over the past couple years, rebounds off the 100 level have triggered sharp selloffs in commodities like gold and silver, due to the well-established inverse relationship between the dollar and commodity prices.

In my recent updates, I showed how the Dollar Index broke below the key 100 level in mid-April, hovered just beneath it, and then formed a pennant pattern—a chart formation that typically signals an impending sharp move. However, it's crucial to wait for a confirmed breakout in either direction before acting, rather than jumping the gun.

Well, today the Dollar Index broke out of its pennant pattern and pushed back above the key 100 resistance level—reversing its recent breakdown. On the surface, that appears bullish for the dollar, but there are several reasons I’m not fully convinced just yet. The breakout was marginal, volume was light across the board—including in the forex market—and we have the highly anticipated U.S. monthly jobs report coming Friday morning, which is often a major market mover.

Many traders hesitate to take firm positions ahead of that report. For now, I’m taking a wait-and-see approach: if tomorrow’s jobs data or other upcoming catalysts reinforce the dollar’s strength and the breakout holds, I’ll be more inclined to view it as a legitimate move. But if the report is weak and the Dollar Index slips back below 100, then the bearish dollar thesis may still be alive and well.

I also want to highlight something important: the U.S. Dollar Index charts I’ve been sharing—for convenience—have all been based on the spot Dollar Index. However, if you look at the Dollar Index futures traded on the ICE Futures exchange, it actually didn’t close above the 100 level. At the time of this writing, it sits at 99.985, which technically means no breakout has occurred.