Gold Catching Down with Euro
Readers of the last 4 articles (since Jan 4) were given several technical and fundamental argumenst calling for more declines in EURUSD. Here's another one, with a touch of gold. Last week, gold hit a new record high in euro terms, highlighting the latest weakness in the single currency rather than gold's improved lustre. Analysing gold's movements against various currencies is not only crucial in weighing the true performance in the precious metal, but also important in valuing a currency's secular movement (rather than comparing it to other currencies). Thus, figuring out whether a falling EURUSD is a result of broadening euro weakness rather than a strengthening USD can be addressed via golds multi-FX analysis.
The first chart shows weekly gold in USD terms suffering from classic bearish case of lower highs i.e. failed rebounds. The $1,225 record high from December 2nd coincided with the same month of the higher than expected US November jobs report and the triple downgrade of Greece credit rating from Fitch, Moodys and S&P. As long as gold fails to regain $1,133 (50% retracement of the decline from 1225 high to 1043 low), it remains vulnerable to $1,020 (target by Mar 6th), followed by $980. Our long-term bullish stance in gold would only be reconsidered in the event of a break below $880.
The second chart shows weekly gold in EUR terms reaching a new record high of EUR 831.00 Since this occurrence is primarily EUR-driven move, it merits more attention regarding its implications for EUR rather than gold. We would only start to focus on golds strengthening trend when it nears its highs vs. the stronger JPY and AUD as was the case in early December.
The third chart shows eroding interest in gold net longs (positioning of futures contracts in NY Mercantile Exchange). Last week, net longs rose for the first time in 5 weeks after having fallen to 181,519 contracts, the lowest since September. Since December, falling net longs were more a case of a decline in new longs rather than an escalation in fresh shorts, which is unlike in Q3 2008, when golds decline was prompted by surging shorts as a result of the great unwinding trade. Reconciling golds robust performance against EUR and the fading interest in gold net longs (vs. USD) justifies our bearishness in EURUSD as well as anticipation of further losses in Gold/USD. Technical analysis of golds net longs suggests the decline will retest the 130K level from the current 188K.
Fed Chairman Bernanke will likely use this weeks semiannual monetary policy testimony to tone down any overshoot in short term yields by reiterating exceptionally low levels of the federal funds rate for an extended period, but that will likely fail in dissuading USD bulls, especially as bond traders anticipate payment of interest on reserves as the Feds next step of exiting its liquidity strategy.
Dead Cross on Gold
And those who became familiar with the meaining of DEAD CROSS formations, Daily gold sees its 50-day MA falls below its 100-day MA. Readers of this site were warned on Jan 19 about the dead cross in EURUSD (50-day MA falling below 100-day) 23 hours before it occured. 18 hous later, EURUSD lost 210 pips see here for that Jan 19 warning. 3-year Anniversary of the Pre-Crash CorrectionFebruary 27 (marks the 3-year anniversary of the 1st correction in global bourses, which wiped out nearly $600 billion in market value, triggered by fears of higher transaction taxes in China, an expected plunge in US durable orders and preliminary fears of US subprime debt. The Shanghai Composite plunged 10%, NASDAQ fell 4% and DJIA dropped 3%. While the global patient has shown marked signs of improvement, it remains highly vulnerable to multiple sources of contagion (Eurozone fiscal woes, Chinese tightening, rating concerns in Gulf & pace of liquidity reduction by Fed). Pay attention to recurring cycles and repeat events.
Canadian dollar falls across the board as markets unwind gains in commodity currencies ahead of potential event-risk from Bernanke's testimony. CADJPY bearishness was highlighted by negative crossover in the stochastics, losing 270 pips since Monday's tweets and IMTs. Subscribers to our IMTs and Twitter.com/alaidi were initially warned on ensuing CADJPY bearishness on Monday when it stood at 87.70.
For a more detailed analsyis on valuing gold in various currencies, see Chapters 1 and 8 of my book "Currency Trading & Intermarket Analysis". and IMTs.
Subscribe FREE to our Intraday Market Thoughts (IMTs) and follow us on Twitter for breaking trading analysis.
One reason to buy euro now is because no one is..... If the recession persists in US which i guess it will, there's no sanity in saying that other basket currencies will rally vs the dollar. Respite of risk aversion does not seem to be going away and if you every time the US M3 money supply starts to fall the global economies start to crumble at the same rate as US. Some lag but they get there eventually, just like UK and Japan right now.
Pound historically have always been and acted worse under conservatives. But at the same time you can believe me when I say this, Uk is no stranger to IMF and if worst comes to worst, i kid you not! Uk will go there. Countries like US Japan and UK and even benchmarked Eurozone can come out of it as their Central Banks in a time not so distant in the future will be the only holder of debt bonds and controlling most commercial banks from around the world. By that time say 5 years from now commodity inflation will be sky high and it would be the best time to sell metal asset preferably Gold. Also by that time market will get more competitive like in the 80's and stock will be back.
This main politics, for who controls the world and shares its global rights and power. What we face now is to test who control the peasants of the world. Your either with them or dead already.
Plus at the same time observe what is not being discussed in the main stream and on the policy level. Yes through money at them, collect and sell debt seems like a brilliant idea to print more money from restructuring debt and then build further financial models based on some old rubbish economic theories from over 100's years ago. One simpler solution if any country wants to bring its people out of these hard economic times is to cut consumption and imports rely more on domestic manufacturing and growth, just what Brazil, India, and even russia did. Look where it got them. Atleast no one goes hungry and every one is pocketing one thing or the other. Service sector can always grow based on some other economies consumption or demand.
We dont need great leader for this kind of vision only willing nations and people of nation. But no we'er too far driven with the illusions of having more and not caring how we get that.
Would love to hear some views on how to fix the problem rather than people still trying to proves whose right and whose wrong.
Ashraf
http://bit.ly/ahGryb
Plz discuss copper technicals
OK Tell me! What now? :|
I hope you didn't short Gold. Yan Ban Fei's speculation may be correct - just wrong timing.
On the other hand, with all the global events happening, i suggest you relook at the situation before shorting Gold. Good luck
PLEASE REFRAIN FROM MAKING REMARKS THAT COULD BE OFFENSIVE TO ANY PARTICULAR ETHNIC OR RELIGIOUS GROUPS OR ANY PARTICULAR NATION.
NOBODY (YES NOBODY) IS ALLOWED TO VOICE THEIR OPINIONS ABOUT POLITICS, HISTORY ETCC,
YES, NOBODY.
IF ANYONE FINDS THIS TO BE UNDEMOCRATIC THEN FEEL FREE TO LEAVE THIS FORUM
KEEP YOUR COMMENTS RELATED TO THE MARKETS, THE ECONOMY. YOU CAN EASILY TALK ABOUT GEOPOLITICAL RISKS WITHOUT MAKING ATTACKS OF EVEN VOICING OPINIONS ABOUT NATIONS ETCC.
MESSAGE LOUD AND CLEAR.
ASHRAF