Commodities Warn Of Aussie Dollar Weakness

By Colin Twiggs
August 27, 2009 4:00 a.m. ET (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 is consolidating between 77.50 and 79.50. Downward breakout is likely and would signal another down-swing with a target of 74*. Breakout above 79.50 and the declining trendline is less likely and would indicate a test of 81. In the longer term, breakout above 81 would signal reversal to a primary up-trend, with an initial target of the March low at 83.

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

Euro

The euro is testing long-term resistance at $1.44. Downward breakout from the gradually rising trend channel would indicate a test of primary support at $1.38. Further weakness in the spot gold price would warn of a stronger dollar/weaker euro. Breakout above $1.44 remains as likely, however, and would signal a primary advance to $1.50*; while penetration of support at $1.38 would signal a primary down-trend, with a target of $1.32*.

* Target calculations: 1.44 + ( 1.44 - 1.38 ) = 1.50 and 1.38 - ( 1.44 - 1.38 ) = 1.32

Swiss Franc

The euro is consolidating between 1.50 and 1.54 CHF, with any signs of weakness prompting further intervention by the Swiss National Bank.

Japanese Yen

The dollar is consolidating in a narrow band above support at ¥94, warning of a downward breakout. Expect a test of the lower channel at ¥90, although there is bound to be some support at ¥92. Upward breakout from the trend channel is most unlikely; recovery above ¥98, however, would signal reversal to a primary up-trend.

Australian Dollar

The Aussie dollar is headed for another test of support at $0.82 against the greenback. The declining CRB Commodities Index warns of further weakness and breakout below $0.82 would signal another test of primary support at $0.77. Reversal above $0.85 is unlikely at present, but would indicate a primary advance to $0.90*.

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

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