Gold, Oil, Currencies & Interest Rates
By Colin Twiggs
June 06, 2007 0:30 a.m. ET (2:30 p.m. AET)
Spot gold consolidated in a small pennant over the last few
days, an upward breakout would herald another test of
resistance at $690; while a downward break would signal a test
of support at $650 and likely continuation of the secondary
In the longer term, the primary trend remains up and a rise above $690 would signal continuation of the up-trend, while a fall below $630 would warn that the trend has reversed. Strong crude prices should support demand for gold.
December Light Crude continues in a right-angled descending broadening formation; the failed swing to the lower border signals that an upward breakout is likely.
The euro respected the first line of primary support at $1.34 and appears set for a test of resistance at $1.37. Reversal below support at $1.34, though now unlikely, would break the long-term trendline, signaling trend weakness. However, only a fall below primary support at $1.29 would reverse the up-trend and this also appears unlikely. A rise above the 2005 high of $1.37, on the other hand, would continue the primary advance.
The dollar respected resistance at 122 against the yen. Narrow consolidation would be a bullish sign and breakout above 122 would signal a long-term up-trend.
The Australian dollar respected intermediate support at 0.8150 before rallying sharply back to resistance at 0.8400. Failure to test the first line of primary support at 0.8000 suggests a strong up-trend.
Ten-year treasury yields are trending upwards after completing
a new high above 4.90%. A break of the orange downward
trendline would suggest that the super-cycle bear trend
may be over - reinforced if there is a rise above the 2006 high
of 5.25%. Higher risk-free yields tend to raise the required
rate of return for equity investments and lower Price-Earnings
The yield differential (10-year minus 13-week treasury yields) is improving, suggesting a more positive outlook for the economy.
Short-term treasury yields are consolidating between 4.60% and 4.80%, suggesting lower targets set by the Fed. A fall below 4.60% would confirm that the Fed is increasing liquidity in the economy in the hope of engineering a soft landing. Prospects of further rates hikes appear minimal and rates may remain constant for some time.
China is recovering and the S&P 500 is testing support after breaking the previous all-time high of 1530. Bearish divergence on Twiggs Money Flow highlights profit-taking. A fall below the trend channel would warn of a secondary correction, while reversal above 1540 would signal a test of the upper channel line.
Probability of recession in the next four quarters retreated to 41 per cent according to the Wright Model.
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