Dollar weakens, gold finds support

By Colin Twiggs
January 27, 2011 12:10 a.m. ET (4:10 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 fall in the greenback is slowing, reflected by shorter bodies on the last three candles. Expect retracement to test the new resistance level at 79 on the US Dollar Index. Respect would confirm a test of primary support at 76. Twiggs Momentum (21-day) below zero suggests a down-trend; a peak below zero would strengthen the signal. Recovery above 79.50 is unlikely, but would warn of a bear trap.

Gold

The weakening dollar is likely to strengthen precious metals and commodity prices. Gold found support at $1320, evidenced by the long tail two days ago. Twiggs Momentum (21-day) remains below zero, warning of a correction; only recovery above the declining trendline would negate this.

Twiggs Money Flow (21-day), however, recovered above zero on GLD, indicating buying support.

Silver

Silver is retracing to test the new resistance level after breaking support at $28/ounce. Expect a correction as signaled by the large bearish divergence on Twiggs Momentum (21-day).

* Target calculation: 28 - ( 31 - 28 ) = 25

Crude Oil

Brent Crude broke its rising trendline, suggesting a correction to test support at $90/barrel. Twiggs Momentum (21-day) holding well above zero indicates a healthy primary up-trend.

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

Euro

The euro broke through resistance at $1.35, indicating an advance to $1.42*. In the short-term, expect retracement to test the new support level. A Twiggs Momentum trough above zero would strengthen the bull signal.

UK Pound Sterling

The pound is testing medium-term resistance at $1.60, 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.

Twiggs Money Flow (21-day), however, is rising steeply on FXB (fxb_us). Breakout above $1.60 would indicate an advance to $1.66*.

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

Japanese Yen

A Twiggs Momentum peak at the zero line indicates the dollar is headed for another test of long-term support at ¥80. In the long term, failure of support at ¥80 would offer a target of ¥76*, while recovery above ¥84.50 would signal an advance to ¥87*.

* Target calculation: 80 - ( 84 - 80 ) = 76; 84 + ( 84 - 81 ) = 87

Australian Dollar

The little battler continues to test resistance at $1.00. Breakout would signal another test of $1.02 and form a large bullish ascending triangle; while reversal below $0.98 would test $0.96. Bearish divergence on Twiggs Momentum continues to warn of reversal, but breakout above the declining trendline would negate this. In the long term, failure of support at $0.96 would signal a decline to $0.90*; and breakout above $1.02 would offer a target of $1.08*.

* Target calculation: 0.96 - ( 1.02 - 0.96 ) = 0.90; 1.02 + ( 1.02 - 0.96 ) = 1.08

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.

~ Ernest Hemingway