Category: Forex

Coverage of all major currencies and the US Dollar Index.

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Gold: The rally continues

The Dollar Index is testing resistance at 98; breakout would offer a target of 100. The stronger Dollar has softened demand for Gold.

Dollar Index

Silver is retracing to test its new support level after breakout above $16. Respect of support at $16 would signal an advance to $17.50. Gold and silver tend to move in unison.

Spot Silver in USD

The Gold Bugs Index, representing un-hedged gold stocks, is retracing after a strong rally. A correction of short duration would be a bullish sign, suggesting another advance.

Gold Bugs Index

Spot Gold continues to consolidate above short-term support at $1400, indicating buying pressure. Upward breakout is likely and would offer a medium-term target of $1500/ounce.

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Gold: Every cloud has a Silver lining

Long-term interest rates are declining after more dovish speeches from the Fed, with 10-year Treasury yields re-testing support at 2.0%. The opportunity cost of holding gold is low.

10-Year Treasury Yields

The Dollar Index is likely to weaken, testing primary support at 95. A weakening Dollar boosts demand for Gold.

Dollar Index

A big gain in Silver this week is likely to be followed by a similar move in Gold. The two precious metals tend to move in unison. Breakout above $16.00/ounce signals an advance to $17.50.

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Gold is consolidating above short-term support at $1400 after a strong advance, indicating buying pressure. Another advance is likely, with a medium-term target of $1500/ounce.

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Gold buying pressure

Long-term interest rates close to zero after inflation, with 10-year Treasury yields testing support at 2.0%, means that the opportunity cost of holding gold is minimal.

10-Year Treasury Yields

A weakening Dollar Index is expected to test primary support at 95, further boosting demand for Gold.

Dollar Index

Gold found short-term support at $1400 after a strong advance, indicating buying pressure. Respect of support at $1350/$1400 would offer a medium-term target of $1500/ounce.

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Gold tests support

The Dollar Index found short-term support at 96. The medium-term target is primary support at 95.

Dollar Index

Gold retraced to test short-term support at $1400. This is a primary advance. Respect of $1350/$1400 would signal a test of the medium-term target at $1500/ounce.

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Dollar dives and Gold soars

The Dollar Index penetrated its rising trendline and is headed for a test of support at 95.

Dollar Index

The falling Dollar boosted Gold. Breakout above resistance at $1350 indicates a fresh advance, with a medium-term target of $1500/ounce. Retracement that respects the new support level ($1350) would strengthen the bull signal.

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Gold lifted by rising Treasuries and falling Dollar

10-Year Treasury yields are testing LT support at 2.00% after falling 120 basis points (bps) since late last year.

10-Year Treasury Yield

Rising global uncertainty has caused a massive outflow from equity funds into bonds.

The Dollar Index penetrated its rising trendline, warning of a correction to test 95.

Dollar Index

Demand for Gold is boosted by lower bond yields and a lower Dollar. Spot Gold breakout above resistance at $1350 would signal a fresh advance, offering a medium-term target of $1500/ounce (short-term: $1400).

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Gold surges as the Dollar falls

The latest rally in Gold reinforces my bearish outlook for equities. Gold and Treasuries are rising as investors seek a safe haven from the likely turmoil in equities.

The Dollar Index plunged below its LT rising trendline, warning of a test of 95.

Dollar Index

Gold responded, testing resistance at $1350. Breakout above $1350 would offer a medium-term target of $1400/ounce.

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Gold at a watershed

Silver found short-term support at $14.50/ounce but declining Trend Index peaks indicate selling pressure and a test of primary support at $14 is likely.

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Gold, by contrast, has found strong support at $1280/ounce, refusing to give way despite concerted selling. Breach of 1280 would signal a test of primary support at 1180 but recovery above 1300 becomes increasingly likely the longer that support holds.

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A rising Dollar would weaken demand for Gold but the Dollar Index has met strong resistance between 97 and 98. Follow-through above 98 would signal a fresh advance but a fall below 97 would be bullish for Gold.

Dollar Index

10-Year Treasury yields have also broken support at 2.4% offering a short-term target of 2.2%. Falling Treasury yields have a depressing effect on the Dollar and boost demand for Gold (by lowering the opportunity cost).

10-Year Treasury Yield

Gold is therefore at a watershed. Breach of strong support for Gold at $1280 would be a strong bear signal but respect would be a bullish sign, suggesting another advance. Probability is still favor of the bearish scenario but the bull case is strengthening.

 

 

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ASX 200 rises despite falling Dollar

The Aussie Dollar was trading above 80 US cents 18 months ago but has now broken support at 70 US cents. The immediate target is 68 cents but our long-term target is 60 cents, the lows of 2008.

AUD/USD

While this may benefit mining and other export-led sectors, the medium-term impact may be increased cost of offshore funding for the major banks. The chart below, sourced from the RBA, shows major banks rely on offshore funding of close to $650 billion (between 18% and 19% of total funding of $3.4 trillion).

Major Bank Funding

The ASX 200, buoyant after a surprise election result, broke resistance at 6400. Expect retracement to test the new support level, shown at 6350/6400 below on the daily chart. Respect would confirm a fresh advance.

ASX 200

I remain cautious of Australian stocks because of two factors: (1) potential fallout from a US-China trade war; and (2) declining housing prices and construction activity in Australia. With (common equity Tier 1) leverage ratios close to 5%, banks are under-capitalized and could act as “an accelerant rather than a shock-absorber” with any external shocks.

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Gold retreats as the Dollar strengthens

China’s Yuan fell sharply against the Dollar on imposition of tariffs by the US. Expect a test of primary support.

Chinese Yuan/US Dollar

The Dollar index strengthened. Follow-through above 98 would signal a fresh advance. The long-term target is 100.

Dollar Index

10-Year Treasury yields are testing support at 2.40%. Breach would offer a target of 2.20%. Rate hikes are a distant memory.

10-Year Treasury Yield

Gold continues to test medium-term support at $1280/ounce. The tall shadow on this week’s candle warns of selling pressure; as does the Trend Index peak at zero. Breach of support would signal a test of primary support.

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Silver continues to fall, heading for a test of primary support at $14. Declining Trend Index peaks indicate selling pressure.

Spot Silver in USD

Gold is likely to follow.

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