Gold Faces Moment Of Truth

By Colin Twiggs
June 10, 2010 3:45 a.m. ET (5:45 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.

US Dollar Index

The US Dollar Index broke out above its recent pennant, signaling an advance to 95*. Retracement is now testing the new support level and respect would confirm the earlier signal. Penetration of the rising trendline is unlikely, but would indicate trend weakness. Twiggs Momentum holding above the zero line indicates trend strength.

* Target calculation: 87.5 + ( 87.5 - 80 ) = 95

Gold

Gold is at a watershed, having respected resistance at $1250 before retracing to test support at the December 2009 high of $1220. The earlier breakout is not yet convincing, with Twiggs Momentum testing its rising trendline. Reversal below $1200 is unlikely, but would warn of weakness, while breakout above $1250 would confirm a primary advance to $1380*.

* Target calculation: 1220 + ( 1220 - 1060 ) = 1380

Crude Oil

Crude respected primary support at $70, but Twiggs Momentum is declining and respect of the zero line from below would warn of a bear trend. Failure of support at $70 would signal a primary down-swing with a target of 50*.

* Target calculation: 70 - ( 90 - 70 ) = 50

Euro

The euro found short-term support at $1.20 and is likely to retrace to test the new resistance level at $1.25. Respect of $1.25 would confirm the long-term target of parity*. Twiggs Momentum holding below zero indicates a strong primary down-trend.

* Target calculation: 1.25 - ( 1.50 - 1.25 ) = 1.00

UK Pound Sterling

The pound is testing the new resistance level at $1.48. Respect would confirm the medium-term target of $1.38, but bullish divergence on Twiggs Momentum (21-day) favors a reversal, and recovery above zero would strengthen the signal.

* Target calculation: 1.48 - ( 1.58 - 1.48 ) = 1.38

Japanese Yen

The dollar is weakening against the yen. Having penetrated the rising trendline on the price chart, it is now joined by Twiggs Momentum testing its rising trendline. Reversal below ¥88 would re-test primary support at ¥85, while breakout above ¥95 would offer a target of ¥100.

* Target calculation: 94 + ( 94 - 88 ) = 100

Australian Dollar

The Aussie dollar again respected support at $0.81 against the greenback. Expect another test of resistance level at $0.86, but the primary trend remains downward and respect would confirm the target of $0.76*. Recovery above $0.86 is unlikely, but would warn of a bear trap. A Twiggs Momentum rally that respects the zero line (from below) would warn of a strong bear trend.

* Target calculation: 0.81 - ( 0.86 - 0.81 ) = 0.76

A civilization is built on what is required of men,
not on that which is provided for them.

~ Antoine de Saint-Exupery