Gold Catching Down with Euro

by Ashraf Laidi
Feb 23, 2010 18:53 | 201 Comments

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.


Click To Enlarge
Gold Catching Down with Euro - Goldeurfutsfeb22 (Chart 1)

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.

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Comments (Showing latest 10 of 201) View All Comments
said
mulhouse, France
Posts: 2822
9 years ago
Jun 14, 2010 21:59
stationdealer

econopolitics is made of permanent administration whether u r in the UK FRANCE THE USA or any where else. Permanent administraion is here to conduct directive and strategic line in the government and economic measure in tim eof turbulence.
today is not the question of having a leader that is gonna resolve all the problem but a leader that will go beyond th einterface of presidential duration and think for a period of twenty years.
Do u really imagine that there are no correlation between the ecopolitics of the leftist under brown with facilitating fiscal deficit and the austerity measure that are coming under cameron. if u think there are totally different u should change ur rifle of shoulder but if u think there is a link or correlation between the two method, well we agree that after the austerity mesure that are gonna last three years at least in the uk, ur permanent administration will fall back in its excess. isnt the econonomic model of expansion and contraction based among other on the capacity of a state to borrow on the international market?
Stationdealer
London, UK
Posts: 715
9 years ago
Jun 10, 2010 23:03
As much as we can say about the youthfulness and exuberance of the Euro same can be said about Dollar index, it too hasn't been there long. Seeing how dollar index has rallied from its low in 2009 this month is first ever 7month in a row rally for DUx. A monthly close toward 89 or 90 would assure another reason to hit 92 level and then forming an upward channel. That will keep allot of currencies at bay in the historical lower ranges. I guess BOE and ECB were not joking when they said slow growth will be expected through 2010.

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.
catnip
Frankfurt, Germany
Posted Anonymously
9 years ago
Jun 9, 2010 21:43
So far latest China export data boosted industry metals but nevertheless I will go short on Comex copper waiting for Nickel to rebound more to short it again.
Ashraf Laidi
London, UK
Posts: 0
9 years ago
Jun 9, 2010 19:14
Copper broke a key low and testing 38% retracement at 6060. maybe a tad oversold as far as momentum but this could worsen as China cools further.

Ashraf
Passion Trader
Singapore, Singapore
Posts: 52
9 years ago
Jun 7, 2010 23:22
More Upside For Gold in 2010 - Ashraf Laidi
http://bit.ly/ahGryb
Stationdealer
London, UK
Posts: 715
9 years ago
Jun 7, 2010 21:08
Ashraf where do you see copper headed

Plz discuss copper technicals
Stationdealer
London, UK
Posts: 715
9 years ago
Jun 7, 2010 20:45
So you can tell im happy? Got back then, dint check the rate at the time of posting.




OK Tell me! What now? :|
Coach
Singapore, Singapore
Posts: 43
9 years ago
Jun 7, 2010 20:18
@Station dealer, it's 1242 now! 1233???
Stationdealer
London, UK
Posts: 715
9 years ago
Jun 7, 2010 19:48
I'm not! i did for a while and then went long, still aiming for 1233 and to renegotiate there after.....
Coach
Singapore, Singapore
Posts: 43
9 years ago
Jun 7, 2010 19:42
@rrose, Station dealer
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