Dollar plunge causes gold surge

By Colin Twiggs
September 23, 2010 4:00 a.m. EDT (6:00 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.

US Dollar Index

The US Dollar Index broke through primary support at 80, signaling a decline with an initial target of 77*. The sharp fall of 63-day Twiggs Momentum below the zero line strengthens the bear signal. The falling dollar is expected to cause a general rise in precious metals, crude oil and currency crosses.

* Target calculation: 80 - ( 83 - 80 ) = 77

There is an interesting opinion piece by Daniel Gros in the Wall St Journal as to how the US and Japan could prevent currency manipulation: by restricting sales of public debt to countries which allow reciprocal purchases. China's capital controls currently prevent the US from responding to Chinese purchases of US Treasurys.

Gold

Gold broke is testing short-term resistance at $1300. Expect retracement to test the new support level at $1260. Respect would confirm a primary advance to $1360*. Failure of support is unlikely, but would warn of a bull trap. Twiggs Momentum (21-day) reversal below the rising trendline would signal a retracement; and respect of the zero line would confirm the up-trend.

* Target calculation: 1260 + ( 1260 - 1160 ) = 1360

Silver

Silver broke its 3-year high of $21, signaling an advance to $24*. Twiggs Momentum (63-day) respecting the zero line indicates a strong up-trend.

* Target calculation: 19.50 + ( 19.50 - 15.00 ) = 24.00

Crude Oil

Crude is consolidating below $80/barrel. Reversal below the new support level at $78/barrel would warn of another correction, while respect would indicate a test of $83. The longer-term picture remains dull with Twiggs Momentum (63-day) oscillating in a narrow band around zero. The ranging market, between $70 and $83, may continue for some time.

Euro

The euro broke resistance at $1.33, signaling the start of a primary up-trend. Expect an advance to $1.40*. Twiggs Momentum (63-day) recovery above zero indicates the start of an up-trend.

* Target calculation: 1.33 - ( 1.33 - 1.26 ) = 1.40

UK Pound Sterling

The pound is headed for a test of $1.60, breakout would confirm the advance to $1.66*. Twiggs Momentum (63-day) respecting the zero line indicates a strong up-trend.

* Target calculation: 1.60 + ( 1.60 - 1.54 ) = 1.66

Japanese Yen

The dollar retreated below resistance at ¥85, headed for another test of ¥83, which is likely to elicit further intervention from the BOJ. Ability to hold this level in the long-term is doubtful, given the magnitude of the task. Breach of support at the 1995 low of ¥80 would be an admission of failure and would confirm a further primary decline.

Australian Dollar

The Aussie dollar broke resistance at $0.94 and is headed for a test of the 2008 high at $0.98. Expect retracement to test the new support level, but respect is likely to confirm the advance.

* Target calculation: 0.93 + ( 0.93 - 0.81 ) = 1.05

How we live is so different from how we ought to live that he who studies what ought to be done rather than what is done will learn the way to his downfall rather than to his preservation.

~ Niccolo Machiavelli