Gold Bounces Back

By Colin Twiggs
October 1, 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.

The US Dollar Index found short-term support at 76 before rallying to test resistance at 77.50. Breakout above resistance (and the declining trendline) is unlikely, but would indicate that the primary down-trend is weakening. Recovery above the August high of 79.50 would warn that the primary down-trend is reversing. The medium-term target, however, remains at 74*.

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

Gold

Spot gold retreated below the key $1000 level, but a strong blue candle to $1010 indicates solid buying support. Breakout above $1020 would signal a primary advance to $1100*. Failure of support at $985 is unlikely, but would warn of a potential bull trap. The long-term target for the breakout is $1300*.

* Target calculations: 1000 + ( 1000 - 900 ) = 1100 and 1000 + ( 1000 - 700 ) = 1300

Euro

The euro is retracing from resistance at $1.48 to test support at $1.44. Recovery above $1.48, however, would signal an advance to $1.50*. Reversal below $1.44 is unlikely, but would warn of a weakening up-trend — as would penetration of the rising trendline. In the long term, breakout above $1.50 would signal an advance to the 2008 high of $1.60.

* Target calculation: 1.44 + ( 1.44 - 1.38 ) = 1.50

Japanese Yen

The dollar continues its primary down-trend against the yen, testing the lower border of its trend channel. Breakout above the declining trendline would warn of a rally to test the upper channel border — and resistance at ¥94. Failure of support at ¥90 would test the 2008 low of ¥87.

Australian Dollar

The Aussie dollar continues to edge upwards against the greenback — recovering commodity prices increasing momentum. Breakout above short-term resistance at $0.88 indicates a test of the upper channel border; while reversal below $0.86, though unlikely, would warn that the trend is weakening. In the long term, breakout above $0.90 would offer a target of parity*.

* Target calculation: 0.90 + ( 0.90 - 0.80 ) = 1.00

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