Gold, Oil, Currencies & Interest Rates
By Colin Twiggs
June 12, 2007 3:30 a.m. EST (5:30 p.m. AEST)
Spot gold continues its secondary correction after breaking
below support at $650. Expect a test of primary support at
In the longer term, the primary trend remains up and a rise above $695 would signal continuation of the up-trend, while a fall below $630 would signal that the primary trend has reversed. Strong crude prices normally support demand for gold, but this is being offset by a strong dollar.
December Light Crude continues in a right-angled descending broadening formation; last week's failed swing to the lower border signals that an upward breakout is likely.
Recovery of the euro failed, with the currency breaking below the first line of primary support at $1.34 and the long-term trendline - signaling trend weakness. Narrow consolidation over the last three days indicates uncertainty: a downward break would signal a test of primary support at $1.29, while upward breakout would warn of a possible bear trap.
The dollar is in a bullish narrow consolidation below 122 against the yen. An upward breakout is more likely, signaling continuation of the primary advance, while downward breakout would test primary support at 115.00/114.50.
The Australian dollar is consolidating after recovering above 0.8400 - another bullish sign after failure to test support at 0.8000 indicated a strong up-trend.
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Ten-year treasury yield breakout above the long-term downward
trendline suggest that the super-cycle bear trend may be
over - reinforced if there is a rise above the 2006 high of
5.25%. Higher long-term yields tend to raise the required rate
of return for equity investments and reduce Price-Earnings (PE)
ratios, weighing on the market.
The rising yield differential (10-year minus 13-week treasury yields) signals a more positive outlook for the economy.
Short-term (13-week) treasury yields are falling while the effective Federal Funds Rate is constant. The flow of funds from long-term to short-term treasuries means that the market anticipates further rates rises.
The S&P 500 attempted rally has encountered resistance, signaled by the doji candlestick at [M]. A fall below Friday's low at 1490 would warn of a secondary correction, while a close above Monday's high would signal that buyers have regained control. Bearish divergence on Twiggs Money Flow favors a downside breakout.
Probability of recession in the next four quarters continues to fall, reaching 40 per cent according to the Wright Model.
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