There is an inverse correlation between the DXY index and the Nifty Metals index. Look at the chart below:
See that since the start of 2018, the strong downtrend in the metals index has coincided with a sustained up move in the DXY index. However, the steep fall in the DXY index over the last few months due to the unprecedented policy actions of the Fed has triggered a swift and powerful recovery in the metals index.
Observe that since 2018, the metals index has been trading below the downward sloping trend line. It briefly broke above this trend line, but has been unable to extend rally beyond it. In fact, it has now moved back below this trend line. This move has also coincided with the DXY index taking support at the 10-year rising trend line, from where it has managed to stage a smart minor recovery.
Given the strong inverse correlation between the two, how the metals index moves going forward will be closely influenced by how the DXY moves. Any sustained up move in the DXY index could spell trouble for the Nifty Metals index.
To learn more about trend lines, click here.