Gold, Oil, Currencies & Interest Rates
By Colin Twiggs
May 15, 2007 9:30 p.m. EST (11:30 a.m. AEST)
Spot gold formed a narrow consolidation at the lower border of
the trend channel. An upward breakout is favored and would
signal another test of resistance at $690, while a downward
break would warn that the trend is slowing. In the longer term,
a rise above $690 would signal a test of the upper trend
channel; and a fall below support at $630, though not expected,
would signal that the trend has reversed.
Weaker crude prices continue to ease demand for gold.
June Light Crude respected support above $60, but will not signal that the April down-trend has reversed until a higher low is followed by a new high. The most likely scenario is a further test of support at the March low, failure of which would warn of a test of primary support at $53.
The euro dipped below short-term support at $1.3550, but has since recovered and is headed for another test of resistance at the 2005 high of $1.37. Breakout above $1.37 would be a strong sign for the euro, with a long-term target of $1.57 (1.37 + [ 1.37 - 1.17 ]). Reversal below $1.29, though not expected, would signal that the up-trend has reversed.
The dollar continues in a bearish rising wedge against the yen. A downward breakout would warn of a rest of support at 114.50; while breakout above the upper border, though not as likely, would signal a test of long-term resistance at 122. In the longer term, failure of support at 114.50 would warn of a major correction; while breakout above 122 would complete a bullish ascending triangle pattern on the weekly chart, with a calculated target of 134 (122 + [122-110]).
The Australian dollar completed a bullish short-term flag formation with a breakout above the upper border. The target is 0.87 ( 0.83 + [0.84-0.80]), but expect some resistance at 0.84. Reversal below 0.82, though unlikely, would warn of a test of the new support level at 80.
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Ten-year treasury yields are consolidating in a narrow band between 4.40% and 4.80%. Breakout from the large symmetrical triangle is not of any great significance as we are in the last third of the pattern. The yield differential (10-year minus 13-week treasury yields) is improving, caused by falling short-term yields.
Short-term treasury yields continue to fall, signaling that the Fed is increasing liquidity in the economy. Prospects of further rates rises appear to be minimal and, while a rate cut may still be some way off, chances of softening rates are improving.
The S&P 500 encountered stiff selling over the last two days, but has so far held above the new support level at 1500. A fall below last Thursday's low of 1490 would warn of a secondary correction, while recovery above 1510 would signal another test of the upper trend channel. Twiggs Money Flow signals short-term distribution; a more serious longer-term signal if the indicator starts to trend downwards.
Probability of recession in the next four quarters remains at 45 per cent according to the Wright Model.
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