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Dollar surges as crude falls

By Colin Twiggs
August 21st, 2014 3:00 a.m. EDT (5:00 p.m. AEST)

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  • Dollar surges
  • Treasury yields rally, but the trend is down
  • Crude oil prices fall
  • Gold uncertainty continues

Interest Rates and the Dollar

The Dollar Index followed through above resistance at 81.50, signaling a long-term advance to test the 2013 highs at 84.50. Recovery of 13-week Twiggs Momentum above zero strengthens the signal. Reversal below 81.50 is most unlikely, but would warn of another test of support at 80.00.

Dollar Index

* Target calculation: 81.50 - ( 81.50 - 79.00 ) = 84.00

The yield on ten-year Treasury Notes recovered above support at 2.40 percent, but the primary trend is downward. Respect of the descending trendline is likely and reversal below 2.40 would confirm a decline to 2.00 percent*. 13-Week Twiggs Momentum holding below zero strengthens the bear signal. Recovery above the descending trendline is unlikely, but would suggest a rally to 2.65/2.70 percent.

10-Year Treasury Yields

* Target calculation: 2.50 - ( 3.00 - 2.50 ) = 2.00

There are two factors driving the fall in long-term interest rates. The first is aggressive purchases of US treasuries by China in order to maintain a weak yuan. The second is the abysmal state of the employment market when we look past the official unemployment figures. Employment levels for males in the 25 to 54 age group remain roughly 6% — and females 5% — below their previous high.

Employment levels

Gold

Gold is consolidating in a triangle pattern, between $1200 and $1400/ounce. Price action is now too close to the apex (">") of the triangle for breakouts to be reliable, but breach of support at $1280 would test $1240, while breakout above $1320 would test $1350. Oscillation of 13-week Twiggs Momentum close to zero continues to signal hesitancy. In the longer term, recovery above $1350 would indicate a primary up-trend, while breach of support at $1240/$1250 would signal a down-trend.

Spot Gold

* Target calculation: 1200 - ( 1400 - 1200 ) = 1000

Declining crude prices may be contributing to lower inflation expectations and weaker gold demand (as an inflation hedge). Brent Crude breach of $99/barrel would confirm a primary down-trend as would Nymex WTI crude below $92/barrel.

Gold and Crude

It takes a good crisis to get us going. When we feel fear and we fear loss we are capable of quite extraordinary things.

~ Paul Gilding

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