Gold breakout as dollar weakens
By Colin Twiggs
July 14th, 2011 3:00 a.m. ET (5:00 p:m AET)
Spot gold broke out above the triangle formation on the weekly chart, signaling a new advance with a target of 1650*.
* Target calculation: 1550 + ( 1575 - 1475 ) = 1650
AMEX Gold Bugs Index, representing unhedged gold stocks, broke through resistance at 560, signaling another test of 610. The 63-day Momentum recovered above zero but has yet to break the descending trendline, which would strengthen the signal.
Silver rallied to test resistance at $39. Breakout would signal a rally to $50 — a bullish sign for gold — while respect would test primary support at $33.
The Dollar Index made a false break through 76.50 at [*], threatening a bull trap. Breach of the rising trendline would warn of another down-swing with a target of 70* — a bullish sign for gold — but narrow oscillation of 21-day Momentum around the zero line indicates no strong trend as yet.
* Target calculation: 74 - ( 76.5 - 72.5 ) = 70
The CRB Commodities Index is testing resistance at 352 on the weekly chart, but breakout could merely be a broadening wedge formation. The next retracement should provide further evidence. Bearish divergence on 63-day Momentum continues to warn of a primary down-trend. Reversal below 330 would confirm. A weakening dollar would boost demand for commodities.
Brent crude is headed for a test of resistance at $120. Breakout, similar to the CRB index, could merely indicate a broadening wedge formation and we will have to wait for the next retracement to provide further evidence. Renewal of crude's primary up-trend would boost gold, but add another nail in the coffin of the faltering stock rally.
The euro found buying support at $1.40, signaled by a long tail on the red candle [+]. Expect a test of $1.46, but 63-day Momentum remains below zero, indicating weakness. Breakout above $1.46 would signal another advance, with a target of $1.56*, but reversal below primary support at $1.40 would warn of a primary down-trend.
* Target calculation: 1.46 + ( 1.50 - 1.40 ) = 1.56 or 1.41 - ( 1.50 - 1.40 ) = 1.31
The Swiss franc broke out above its trend channel against the euro on the weekly chart, indicating an accelerating up-trend. The sharp rise on 63-day Momentum confirms. Accelerating, or self-reinforcing trends are renown for rapid gains, but also for their spectacular blow-offs. Given the current troubles in the EMU, however, this trend could show some staying power.
* Target calculation: 1.00 + ( 1.00 - 0.80 ) = 1.20
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The pound recovered above primary support at $1.60, suggesting a bear trap. Breakout above the declining trendline would indicate the correction is over — and warn of another test of $1.67. Reversal below $1.59 is unlikely, but would signal a decline to $1.53*.
* Target calculation: 1.60 - ( 1.67 - 1.60 ) = 1.53
The dollar broke through support at ¥80, warning of a decline to ¥75*. Expect the BOJ to make further efforts to halt appreciation of the yen, but it appears they are being over-whelmed by market forces. Weak 63-day Momentum, holding below zero, confirms the down-trend.
* Target calculation: 80 - ( 85 - 80 ) = 75
The Aussie dollar broke primary support at $1.28 against its Kiwi, signaling a primary down-trend, with a target of the June 2010 low at $1.22*. A peak on 63-day Momentum that respects the zero line would confirm.
* Target calculation: 1.30 - ( 1.38 - 1.30 ) = 1.22
The Aussie dollar is again testing resistance at $1.080 against the greenback. Breakout would signal an advance to $1.12*, but another test of $1.04 is equally likely. Narrow oscillation of 21-day Momentum around zero indicates no clear trend as yet, but keep an eye on the CRB index as this is a significant influence.
* Target calculation: 1.08 + ( 1.08 - 1.04 ) = 1.12
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~ Dennis Wholey (1937)