Gold Breaks Key Support Level

By Colin Twiggs
July 29, 2010 4:00 a.m. ET (6:00 p:m AET)

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US Dollar Index

The US Dollar Index continues a strong correction. Expect retracement to test the new resistance level at 85, but respect would signal a primary down-trend. A Twiggs Momentum peak below the zero line would strengthen the signal.

Gold

Gold broke medium-term support at $1170, warning of another test of primary support at $1060. Recovery above $1200 is less likely, but would indicate a bear trap. Large bearish divergence on Twiggs Momentum warns of reversal to a primary down-trend. A peak below the zero line would strengthen the signal.

Crude Oil

Crude is headed for another test of resistance at $80. Breakout would signal an advance to the upper border of the broadening wedge. Reversal below primary support at $70, however would signal a primary down-trend with an initial target of 60*. Twiggs Momentum respect of the zero line from below — signaled by a break of the rising trendline — would be a bear signal.

* Target calculation: 70 - ( 80 - 70 ) = 60

Euro

The euro is again testing short-term resistance at $1.30. Penetration of the declining trendline is encouraging, indicating that the primary down-trend is weakening, but we will have to see whether retracement respects the new support level at $1.25. Until then, reversal below support at $1.19 remains as likely, and would offer a long-term target of $1.10*. Twiggs Momentum is rising strongly and a trough above the zero line would signal an up-trend.

* Target calculation: 1.20 - ( 1.30 - 1.20 ) = 1.10

UK Pound Sterling

The pound broke through resistance at $1.55 — a weak reversal signal. Bullish divergence on Twiggs Momentum indicates that a primary reversal is likely, but we need a successful test of support at $1.48 to confirm the bull signal. Reversal below the rising trendline is unlikely, but would warn of another test of primary support at $1.43.

Japanese Yen

The dollar is headed for a test of primary support at ¥85. Reversal below short-term support at ¥86.50 would confirm. Failure of primary support would offer a target of ¥75*, but expect strong support at the 1995 low of ¥80. Declining Twiggs Momentum confirms the strong down-trend; further peaks below the zero line would strengthen the signal. Recovery above the descending trendline is unlikely, but would indicate that the down-trend is weakening.

* Target calculations: 85 - ( 95 - 85 ) = 75

Australian Dollar

The Aussie dollar is advancing toward resistance at $0.9350. Reversal below the rising trendline is unlikely, but would warn of another test of primary support. Twiggs Momentum needs to continue rising (above 5%) to provide evidence of an up-trend; a shallow peak would be a bear signal.

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