As my primary focus remains on precious metals (gold, silver & the mining stocks) as well as select commodities (coal, crude oil and specific agricultural commodities), I continue to keep a watchful eye on the US dollar along with the Euro & Yen. With the US Dollar index trading higher overnight due to China’s first rate cut since mid-2012 along with some renewed jawboning from Mario Draghi threatening new stimulus measures to slay the deflationary dragon, it is worth noting that not only does the recent disconnect of the inverse correlation between the dollar vs. gold & oil continue, with both crude oil & gold trading sharply higher overnight in spite of the spike in the $USD, but should gold & oil hold onto (and especially continue to build upon) these overnight gains, both will have clearly taken out some key resistance levels: The aforementioned 114.70-115 former triple-bottom in GLD as well as the bullish falling wedge pattern on USO.

Also keep in mind that the technical case for the recent long trade in USO (crude oil etf) was two-fold: The bullish falling wedge pattern on the 120/60 minute time frame as well as the fact that USO had recent fallen to the bottom of a long-term support zone that has contained prices for over 5 years now (also while registering the most oversold reading on the weekly RSI since the global financial meltdown in late 2008). I had recently pointed out that USO was trading slightly below that support level so if these overnight gains hold, USO is currently poised to gap up right back to the bottom of that former support zone. As with my primary scenario in gold & silver, the recent break below key long-term support in USO would prove to be a bear-trap, should USO move solidly back above that support level.

In summary, although the day is still young, the pre-market action in both GLD & USO is poised to carry over to some potentially longer-term bullish technical events. The fact that gold & oil have been rising despite the recent strength in the dollar can only be viewed as bullish. Whether or not this proves to be a temporary disconnect between the typical correlation between these pairs is yet to be seen but if my call for a major reversal in the dollar does pan out, then gold, oil & most other commodities would likely move sharply higher.  The first chart below is the weekly chart of $XEU (Philadelphia Euro Index) that was posted on Oct 3rd, pointing out at that time that the EURO had about 2 1/2% downside left before reaching the bottom of a very large, well defined triangle pattern. The next chart is the update weekly of $XEU. Keep in mind this is an end-of-day chart & therefore, Draghi’s most recent jawboning is not reflected in this chart although as the third chart shows (real-time EUR/USD daily) the EUR is down just over 1%, which would currently put the $XEU much closer to that long-term support line.

note: This update was composed before the m