Brief Dollar Rally, Gold Dips

By Colin Twiggs
December 3, 2009 9:00 p.m. ET (1:00 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 is headed for a test of resistance at 75. The rally is likely to be brief as there is no sign of abatement in the strong primary down-trend — indicated by the Twiggs Momentum Oscillator holding well below zero. Reversal below 74 is expected and would offer a target of the 2008 low at 71. Breakout above 76, and the upper trend channel, is unlikely, but would warn that the primary trend is weakening.

Spot gold continues in an accelerating up-trend. The latest retracement is likely to be brief, and respect of support at 1190/1200 would signal another advance. Failure of support at 1140 is most unlikely, but would warn of a correction to test primary support at 1130. The primary advance offers a medium-term target of $1300/ounce*.

* Target calculation: 1000 + ( 1000 - 700 ) = 1300

Euro

The euro broke through resistance at $1.50 before retracing to test the new support level. Respect would offer a short-term target of $1.53*. Momentum holding above zero confirms a strong up-trend; the bearish divergence so far indicates consolidation, but reversal below zero (while unlikely) would signal a correction. Expect a test of $1.60* in the medium to long-term.

* Target calculation: 1.50 + ( 1.50 - 1.47 ) = 1.53 and 1.50 + ( 1.50 - 1.40 ) = 1.60

Pound Sterling

The pound edged back below support at $1.66. Normally the flag formation is a bullish continuation signal, but reversal below the support level raises a question-mark. Recovery above $1.67 would signal an advance with a target of $1.75*, but downward breakout must be considered equally likely and would test the band of support between $1.58 and $1.60.

* Target calculation: 1.66 + ( 1.67 - 1.58 ) = 1.75

Japanese Yen

The dollar rallied sharply against the yen, headed for a test of the upper trend channel. Marginal breakout below a major support level is a bullish sign and respect of support at the December 2008 low over the next few months would warn of a primary trend reversal. Respect of the upper trend channel, however, would indicate another test of support at ¥87.

Australian Dollar

The Aussie dollar continues to consolidate between $0.90 and $0.93 against the greenback. Breakout above $0.93 would signal an advance to $0.96*; failure of support at $0.8950 is unlikely, but would warn of a secondary correction.

* Target calculation: 0.93 + ( 0.93 - 0.90 ) = 0.96

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