Taking profits on our short positions and closing them on Thursday turned out to be a good idea. Gold, silver and – on an intraday basis – mining stocks moved higher on Friday, while the USD Index declined. But, is the rally over after just one day? Not likely – gold’s and miners’ turning points are likely to result in something more than just a daily rally. So, how high is gold likely to rally this time?That’s what we discuss in the following part of today’s alert.

But first, let’s take a look at what happened in the USD Index (chart courtesy of http://stockcharts.com).

USD’s Erratic Movement Is Not That Erratic

In the previous analyses, we wrote that we were still skeptical about the USD’s upswing as the confirmation of the USD’s move above the medium-term support / resistance line was still rather weak.

The less bullish view of the situation turned out to be true, as the index closed the week once again below the mentioned declining line. The interesting thing is that it happened after the USD Index corrected to the 38.2% Fibonacci retracement based on the November 2017 – February 2018 downswing.

The former means that the move lower was not accidental but was likely a way for the USD to take a breather during the rally. The move below the medium-term declining line means that the downswing may not be over. Previously, when the USD moved below the medium-term line, it moved to new 2018 lows, and traders definitely remember it. Therefore, some of them will likely bet on the repeat of that scenario. But, will they be correct?

The decline to the February low could be seen, but we doubt it. After all, the USD is after breakouts above the declining short-term support / resistance lines, so a move back to one of them seems more likely. This means the USD could decline to about 89 or so before the rally resumes.

We marked the target area with a red triangle. We think that the declining support line will trigger a reversal and we don’t think that the decline will take longer than a week. The latter is based on the pace at which the USD declined previously and also on gold’s triangle apex reversal – if gold is likely to reverse course in a week or so, then something similar could be seen in the USD.

Let’s keep in mind that the USD Index is above a combination of very strong support levels stronger than the mentioned medium-term support/resistance line. So, the fact that the USD closed the previous week below it, has only short-term implications, not long-term ones.

Gold’s Upside Target

Before providing you with a target area, let’s begin by recalling gold’s triangle apex reversal (we discussed it more thoroughly on Monday):

The apex of the triangle marks an important reversal date. We elaborated on this technique in the previous alerts, so we don’t want to go into the details once again. Long story short, the usefulness of this technique has been confirmed for the precious metals sector multiple times, including the recent cases (including the February 9 powerful reversal in mining stocks), so it’s something gold traders should take into account.