Commodities weak but dollar trend remains down

By Colin Twiggs
May 19th, 2011 4:30 a.m. ET (6:30 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.

Commodities

The CRB Commodities Index has twice respected primary support at 335 and is rallying for a test of resistance at 350. Breakout would signal another test of 370.

Some top-performers like copper and tin have broken primary support to indicate a down-trend. Penetration of copper's long-term trendline at 8000, however, would strengthen the signal.

These should be considered exceptions, however, until the dollar warns that it will reverse its primary down-trend

US Dollar Index

The Dollar index rallied to test resistance at 76, but the primary down-trend remains intact. Breach of support at 73 would test 71, while breakout above 76 would confirm that momentum is slowing.

* Target calculation: 76 - ( 81 - 76 ) = 71

Gold

Gold established medium-term support between $1460 and $1475. Recovery above $1520 would test the earlier high at $1550, while failure of support would indicate a correction to the long-term trendline around $1400. Again, the behavior of the dollar will be a major influence.

* Target calculation: 1430 + ( 1430 - 1310 ) = 1550

Silver

Silver is testing medium-term support at $33. Failure would test primary support around $26 — penetration of the long-term trendline warning that the up-trend is coming to an end. Recovery above $40, however, would indicate another advance to $50.

Euro

The euro is testing support at $1.42. Failure would confirm a correction to the long-term trendline.

* Target calculation: 1.40 + ( 1.40 - 1.30 ) = 1.50

UK Pound Sterling

The pound retreated below its new support level, signaling trend weakness. Twiggs Momentum oscillating above zero continues to indicate an up-trend, but failure of support at $1.60 would override — warning of a test of primary support at $1.53.

* Target calculation: 1.63 + ( 1.63 - 1.53 ) = 1.73

Japanese Yen

The dollar continues to test long-term support at ¥79 to ¥80. Failure would signal a decline to ¥75*.

* Target calculation: 80 - ( 85 - 80 ) = 75;

New Zealand Dollar

The kiwi dollar continues in an up-trend against the greenback but expect strong resistance between $0.81 and $0.82, around the 2008 high. Equally good support should be found at $0.76 (backed by the long-term trendline); so we may see a ranging market for a while.

Australian Dollar

The Aussie dollar established medium-term support between $1.06 and $1.05. Failure would signal a correction to $1.02. Respect is less likely, given the weakness of commodities, but recovery above $1.09 would offer a target of $1.15*.

* Target calculation: 1.10 + ( 1.10 - 1.05 ) = 1.15

I have just three things to teach: simplicity, patience, compassion. These three are your greatest treasures.

~ Lao Tzu: Tao Te Ching