Feb 8th 2020, Silver Chartbook – The bigger picture

The bigger picture

Silver prices are driven by several different factors, which are often opposing in effect. What is the bigger picture? There’s an inverse relationship between the strength of the US-Dollar and the price of silver. This is a counter intuitive idea and stems from the fact that the United States dollar is the world’s reserve currency. In general, when the dollar is on the rise, it creates a short-term downward pressure on the prices of commodities. Another way of looking at this is that when the dollar is strong, it takes more in foreign currencies to purchase gold or silver. That makes the items more expensive, lessening demand. The converse, of course, is true as well. A weakening dollar will make the commodities cheaper, and the increasing demand will, in theory, drive up commodities prices.

At the same time, many savvy investors watch for times when the dollar is strong to average down their holdings by finding bargain prices for their purchases.

What is the bigger picture?

Technical analysis often helps to demystify complex fundamental relationships. It provides an easier grasp on how to practically act upon counter intuitive market behavior.

The bigger picture – The dollar to silver relationship long term:

Silver in US Dollar, monthly chart as of February 8th, 2020

Silver in US Dollar, monthly chart as of February 8th, 2020

Since the introduction of the European common currency called Euro (EUR) the US-Dollar index is measured by the change in value against six currencies. Those are the Euro (EUR = 57,6%), the Japanese Yen (JPY = 13,6%), the Britisch Pound (GBP = 11,9%), the Canadian Dollar CAD = 9.1%), the Swedish Korona (SEK  = 4,2%) and the Swiss Franc (CHF = 3,6%). As you can see, the most influence towards the price of the US-Dollar Index is coming from the daily market movements between the Dollar (USD) and the Euro (EUR). It is therefore prudent to use the EURUSD pair as a proxy when questioning the trend direction of the US-Dollar.

In phase 1 the dollar was very weak. This is represented by the EUR/USD currency pair (orange line) having a multiyear bull run. It advanced by a hundred percent from $0.82 to $1.60. With an approximate three year delay, silver prices (blue line) enjoyed a mutual price advancement. It moved from US$4.05 to US$49.83, which equals a 1.130% gain.

In phase 2 the EUR/USD currency pair declined from its US$1.60 highs to a multiyear support zone near the US$1.05 price level. Just like in phase 1 silver has found it extreme price level within a three year delay of EUR/USD. It declined as well form its highs of US$49.83, finding support around the US$14.00 price zone.

 



 

Silver and US-Dollar monthly Chart – What the future might hold for silver prices:

Silver in US Dollar, monthly chart as of February 8th, 2020 b

Silver in US Dollar, monthly chart as of February 8th, 2020 b

Phase 3 is speculative in nature. The time delays of roughly three years represented through a, b and c do seem intriguing. Both the Euro and Silver have found supporting supply and demand zones. This turning point hypothesis would be in alignment with fundamental reasoning.

The bigger picture

Fundamental analysts are often head to head with technical analysts. Our rational minds have a need to find rhyme and reason within event chains. We find it beneficial to approach the markets from various angles. Why leave out good charting? “A picture is worth a thousand words” and might just save some time.

The sum of both, macro and micro fundamental forces, can easily be confusing. This because multiple forces pulling in various directions and many moving parts creating to many variables. It is helpful to bring a larger time frame chart to the mix. Creating a singular view through a chart can summarize a complex intellectual structure into a clearer scenario.

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About the Author:

Outstanding abstract reasoning ability and ability to think creatively and originally has led over the last 25 years to extract new principles and a unique way to view the markets resulting in a multitude of various time frame systems, generating high hit rates and outstanding risk reward ratios. Over 20 years of coaching traders with heart & passion, assessing complex situations, troubleshoot and solve problems principle based has led to experience and a professional history of success. Skilled natural teacher and exceptional developer of talent.Avid learner guided by a plan with ability to suppress ego and empower students to share ideas and best practices and to apply principle-based technical/conceptual knowledge to maximize efficiency. 25+ year execution experience (50.000+ trades executed) Trading multiple personal accounts (long and short-and combinations of the two). Amazing market feel complementing mechanical systems discipline for precise and extreme low risk entries while objectively seeing the whole picture. Ability to notice and separate emotional responses from the decision-making process and to stand outside oneself and one’s concerns about images in order to function in terms of larger objectives. Developed exit strategies that compensate both for maximizing profits and psychological ease to allow for continuous flow throughout the whole trading day. In depth knowledge of money management strategies with the experience of multiple 6 sigma events in various markets (futures, stocks, commodities, currencies, bonds) embedded in extreme low risk statistical probability models with smooth equity curves and extensive risk management as well as extensive disaster risk allow for my natural capacity for risk-taking.

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