As the euro rips higher today after comments by Jean-Claud Trichet and the newly proposed bailout measures in the struggling euro-zone, it would be wise to watch silver as a proxy for the currency markets. Since silver broke its parabolic formation over a month ago, both markets have been trading with great correlation - with silver leading the way by several sessions. This makes sense in the fact that the silver market is a much shallower and more impressionable market that will trade with greater nuance to the underlying market conditions. Jawboning by the ECB appears to be only momentarily supporting the euro. I would expect the euro to follow suit lower over the next several sessions.
The fact that silver failed to take out the early May dead-cat-bounce highs indicates that the mid May lows will at the very least be tested and likely broken. The violent reversal in silver yesterday confirms that expectation.
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(Positions in UUP & ZSL)
