Playing Dollar Weakness and Silver Strength
12/15/2008
The seven-week sideways coil pattern in the daily chart of the Euro/$ resolved itself to the upside earlier this week. The ability of the Euro/$ to hold Thursday's gains amidst acute overnight weakness in equities is a very powerful sign of relative strength, and likely that the Euro has further to climb against the USD -- at least to the 1.3600-1.3700 area next. This action should be supportive for gold and silver as well.
For ETF traders, ProShares has some new ultra long and ultra short currency ETFs for taking advantage of the movement in forex, and include: ProShares Ultra Euro (ULE), ProShares UltraShort Euro (EUO), ProShares Ultra Yen (YCL) and ProShares UltraShort Yen (YCS).
Looking at silver, specifically at the post March 2008 pattern in the daily spot silver chart, we see higher-lows versus horizontal rally peaks in the 10.60/80 area. This suggests silver should be nearing an upside breakout that triggers follow-through potential to 12.00/20 and then to 13.20/50 thereafter (in a normal, rather than a frenzied market). The fact that the USD has weakened in the past few days should be very supportive for commodities in general, and for silver in particular, despite the very sluggish economic backdrop. Failure of silver to hurdle 10.80 followed by a decline that breaks 9.80 will represent an initial sell signal that will begin to compromise the developing base-like pattern.
For ETF traders, the instrument for capitalizing on the silver trend is the iShares Silver ETF (AMEX: SLV).
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