Dollar Finds Support, Gold Consolidates

By Colin Twiggs
September 24, 2009 8:00 a.m. ET (10:00 p:m AET)

These extracts from my trading diary are for educational purposes and should not be interpreted as investment or trading advice. Full terms and conditions can be found at Terms of Use.

The US Dollar Index is consolidating above short-term support at 76; a bullish continuation pattern. Breakout above the declining trendline is unlikely but would warn that the primary down-trend is weakening. The medium-term target for the current down-swing is 74*.

* Target calculation: 78.50 - ( 83 - 78.50) = 74

Gold

Spot gold is consolidating between $1000 and $1020; a bullish sign. Continued respect [R] of the new support level reinforces the signal. The weakening dollar also favors a primary up-trend. Breakout above $1020 would indicate a primary advance to $1100*. Failure of support at $1000 is unlkely but would warn of a potential bull trap. The long-term target for the breakout is $1300*.

* Target calculations: 1000 + ( 1000 - 900 ) = 1100 and 1000 + ( 1000 - 700 ) = 1300

Euro

The euro is testing short-term resistance at $1.48; breakout is likely and would signal an advance to $1.50*. Reversal below $1.44 is unlikely, but would warn of trend weakness — as would penetration of the rising trendline. In the long term, breakout above $1.50 would signal an advance to the 2008 high of $1.60.

* Target calculation: 1.44 + ( 1.44 - 1.38 ) = 1.50

Japanese Yen

The dollar continues its primary down-trend against the yen. Retreat from the lower channel border and penetration of the declining trendline both warn of a swing to the upper channel. Expect a test of resistance at ¥94. Upward breakout from the trend channel is unlikely, but would suggest a primary trend reversal.

Australian Dollar

The Aussie dollar continues to edge upwards against the greenback, despite weaker commodity prices. With short-term resistance at $0.88 and support at $0.85, expect retracement to test the lower support level before upward breakout to test the medium-term target of $0.90*. In the long term, breakout above $0.90 would offer a target of parity.

* Target calculation: 0.80 + ( 0.80 - 0.70 ) = 0.90

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