Gold, Oil, Currencies & Interest Rates
By Colin Twiggs
May 22, 2007 6:00 a.m. EST (8:00 p.m. AEST)
Spot gold broke down through the long-term trendline, warning that the trend is weakening. Narrow consolidation over the last few days is likely to resolve in a downward direction, which would signal a test of support at $630. The primary trend remains up. In the long term, a rise above $690 would signal a test of the upper trend channel; while a fall below support at $630 would signal that the trend has reversed. Probabilities are about even - when we consider that stronger crude prices should support demand for gold.
June Light Crude is rising sharply after respecting support above $60. Price has formed a descending broadening formation; breakout would be encouraging, but these patterns are prone to pull-backs and are unreliable for trading purposes. A test of resistance at $68 would be positive, however, especially if followed by a narrow consolidation or short retracement.
The euro failed to re-test the 2005 high of $1.37 and is retracing towards the first line of primary support at $1.34. Failure of support would break the long-term trendline, signaling trend weakness and a test of primary support at $1.29. Respect of support remains likely, however, signaling continuation of the up-trend.
The dollar broke out above the bearish rising wedge against the yen and is headed for a test of long-term resistance at $122. Narrow consolidation below resistance, or a short retracement of no more than 3 days, would be a bullish sign. 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's recent flag formation failed and we are now facing a test of the May low, just above 0.8150. If support holds, expect a rally to test 0.84; but failure is equally likely and would test the first line of primary support at 0.80.
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Ten-year treasury yields show early signs of an up-trend after completing a higher low at [b]. A rise above 4.90% would complete the signal, with a higher low in the larger time frame. The yield differential (10-year minus 13-week treasury yields) recovered to above zero: a positive sign.
Short-term treasury yields reversed sharply and are headed for a test of the new resistance level at 4.75%. Failure would signal that all is well (someone had briefly fallen asleep at the wheel); while respect of the new resistance level would signal a policy change from the Fed, increasing liquidity in the economy. Prospects of further rates hikes appear minimal and rates may remain constant for some time.
The S&P 500 is testing resistance at the all-time high of 1530. The up-trend is accelerating and a new all-time high is expected within a few days; narrow consolidation or a short retracement would be a further bull signal. Weekly volumes have doubled in the last 3 years - a sign that the market is heating up.
Probability of recession in the next four quarters has receded to 44 per cent according to the Wright Model.
A pint of sweat will save a gallon of blood.
~ General George S Patton Jr.
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