Dollar strengthens

By Colin Twiggs
January 13, 2011 6:00 a.m. ET (8:00 p:m AEDT)

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 79 and 81.50. Upward breakout is more likely, especially considering that Twiggs Momentum (21-day) is holding above zero. Breakout would signal a primary advance with a medium-term target of 84*, while reversal below 79 would test primary support at 76.

* Target calculation: 79 + ( 81 - 76 ) = 84

Gold

A strengthening dollar is likely to weaken precious metals and commodity prices. Gold is forming a rounding top while bearish divergence on Twiggs Momentum (21-day) warns of a correction. Failure of support at $1360 would first test $1320, but could carry as low as the June high of $1260.

Silver

Silver also shows a bearish divergence on Twiggs Momentum (21-day), warning of a correction with a target of $20/$21. Failure of support at $28 would confirm.

Crude Oil

Brent Crude, however, appears unaffected by the stronger dollar, rising strongly off support at $88/barrel. Twiggs Momentum (21-day) holding above zero indicates a healthy up-trend.

* Target calculation: 88 + ( 88 - 68 ) = 108

Euro

The euro breached support at $1.30, strengthening the bear signal on Twiggs Momentum (holding below the zero line). Recovery above $1.34 is most unlikely and retreat below $1.30 would test primary support at $1.26.

UK Pound Sterling

The pound rallied off support at $1.53, but large bearish divergence on Twiggs Momentum (21-day) continues to warn of reversal to a primary down-trend. Failure of primary support at $1.53 would complete a large head and shoulders pattern and confirm the signal. Recovery above $1.60 remains unlikely, but would indicate an advance to $1.66*.

* Target calculation: 1.60 + ( 1.60 - 1.54 ) = 1.66

Japanese Yen

The dollar continues to test long-term support at ¥80. Twiggs Momentum oscillating around zero signals uncertainty, but the longer term picture is more positive, suggesting a bottom. Recovery above ¥84.50 would signal a new up-trend.

Australian Dollar

The Aussie dollar penetrated its rising trendline and bearish divergence on Twiggs Momentum warns of a reversal. Failure of support at $0.96 would signal a decline to $0.90*. Breakout above $1.02 is now unlikely, but would offer a target of $1.08.

* Target calculation: 0.96 - ( 1.02 - 0.96 ) = 0.90

One of the greatest dangers to peace lies in the economic pressure to which people find themselves subjected. One of the most practical things to be done in the world is to seek arrangements under which such pressure may be removed, so that opportunity may be renewed and hope may be revived.

~ Calvin Coolidge