Weak Dollar Trades Emerge Before Payrolls

Weak Dollar Trades Emerge Before Payrolls

Some new chart patterns suggest “weak dollar” trades have returned as the market braces for December’s non-farm payrolls report.

The U.S. dollar index (@DX) appears to be breaking down from an ascending triangle. Meanwhile, the Market Vectors Gold Miner ETF (GDX) is escaping through the top of an identical pattern. Technicians may view that as an indication of downside risk in the U.S. currency and upside potential in precious metals.

The patterns come at a time of change for the market because January is a natural time to rotate into new sectors. Second, U.S. interest rates have dropped as Federal Reserve officials softened their policy and the federal government headed toward a shutdown.

Finally, unless you’ve been asleep for the last three months, you probably know that technology has taken a beating. Will that free up investor capital for new areas like precious metals or Latin America?

Aside from gold miners, investors may target silver miners as a way to profit from a weakening dollar. The white metal is historically cheap versus its yellow peer. It also tends to rise more quickly in bullish periods, as Market Insights anticipated last week.

Bullish triangles on U.S. dollar-influenced charts. Notice how @DX has broken its triangle.

There are fewer silver miners and they tend to be less heavily traded than gold producers. Still, the two largest based on market capitalization — Wheaton Precious Metals (WPM) and Pan-American Silver (PAAS) — have similar bullish triangles as gold.

In conclusion, this isn’t a trade recommendation and everyone needs to do their own homework. But money seems to be shifting to forgotten parts of the market as investors abandon longer-term positions in technology and adjust to lower interest rates. It’s something to bear in mind after a key economic report like today’s non-farm payrolls.


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David Russell is VP of Market Intelligence at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.