Euro Tremors Weaken Gold

By Colin Twiggs
March 25, 2010 3:00 a.m. ET (6:00 p:m AET)

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The US Dollar Index completed a flag continuation pattern and is advancing towards the target of 84.5*. Twiggs Momentum (21-day) breakout above the declining trendline reinforces the signal. Retracement that respects the new support level at 81.5 would confirm.

* Target calculation: 81.5 + ( 81.5 - 78.5 ) = 84.5

Gold

Gold responded by breaking short-term support at $1100, signaling a test of the band of primary support between $1050 and $1060. A short-term peak on Twiggs Momentum (21-day) that respects the zero line (from below) would strengthen the bear signal. Recovery above the descending trendline is less likely, but would indicate continuation of the advance to $1160.

Crude Oil

Crude is retracing to test support at $78/barrel. Respect is likely and would signal a test of the upper border of the large broadening wedge consolidation. Momentum breaking above the declining trendline favors continuation of the primary up-trend; and a large trough that respects the zero line would confirm. Failure of support at $78, however, would indicate a failed up-swing and downward breakout from the wedge formation.

Euro

The euro plunged through support at $1.34 after the Fitch downgrade of Portugal's sovereign debt rating. The European Monetary Union faces significant instability in the months ahead. Assisting Greece (2.6% of EMU GDP) or Portugal (1.8%) may buy some time, but does not solve the debt issues facing the far larger economies of Italy (17% of EMU GDP) and Spain (11.7%). The current decline of the euro will test $1.30*, but the longer term target is the 2009 low of $1.25*.

* Target calculations: 1.34 - ( 1.38 - 1.34 ) = 1.30 and 1.34 - ( 1.42 - 1.34 ) = 1.26

Japanese Yen

The greenback is testing resistance at ¥ 92; breakout would signal the end of the correction — and an advance to ¥ 100*. Recovery above $93.50 would confirm. Reversal below ¥ 88.5, however, would test primary support at ¥ 85.

* Target calculation: 94 + ( 94 - 88 ) = 100

Australian Dollar

The Aussie dollar is testing short-term support and the rising trendline at $0.91 — caused by a general flight to (relative) safety of the greenback. Failure of support would warn of a correction to test primary support at $0.86. Twiggs Momentum Oscillator (21-day) reversal below zero would strengthen the bear signal, but a large trough above the zero line would indicate another primary advance.

I think everyone should experience defeat at least once during their career. You learn a lot from it.

~ Lou Holtz