Long Or Short – Euro Vs. USD, Precious Metals Recap

The big story on Wall St. today was the big gains for the Euro against the dollar which had several analysts including Goldman Sachs claiming to go long the euro, and that US equity markets would respond positively to the weaker dollar. Below is the technical case for the forex trade.

The first and most obvious thing to note on this chart pattern is the symmetrical wedge that is still intact despite the heavy selling that has taken place over the last week. Most wedges complete the breakout about three-quarters of the way to the tip. Despite the volatility and extremely one-sided trading, this wedge remains intact and this recent selling could very well become a bullish setup. Another small indicator is that there is a bit of a bullish divergence on the RSI and stochastics. However, the reason for this may simply be the increased volatility and I don’t expect that to hold much weight.

If the support line is rejected again, look for a sudden increase in buying pressure as the price may attempt to break through the top trendline.

Despite the bullish sentiment, neither flat resistance nor the trend resistance managed to break in the rush into the euro. There were bullish divergences which certainly setup the buying pressure however even though it was oversold, I don’t believe that anything on the chart justifies a 7 point gain in 4 days. There is volume on both the positive and negative days, and I don’t expect the top trendline, or the 50 Day MA to break without a fight. If this trend in the EUR/USD is to continue, then both support and resistance points need to break. There could be a bounce off of support or resistance before those levels give, so be sure to wait for confirmation of any breakout before entering a position.

The weakness in the gold trade has many precious metals investors watching other commodities like silver and palladium. Gold has been rather boring over the last month or so when compared to its peers and though it hasn’t fallen into a legitimate correction, the consolidation period may be coming to an end within the next week or two. The weekly chart has strong support on the 20 Day MA and in my opinion, it will take a big fundamental change in gold’s structure to cause gold to stay below that for more than one or two weeks.

Silver has yet again tested lows after getting a bounce off of support. SLV closed exactly at $28.00 which is right above where support had been previously laid out. Though the fundamentals for silver remain strong, selling volume on the ETF’s has clearly trumped the buying volume. I have to admit this is somewhat unexpected as there haven’t been any structural changes in the COT reports that suggest more shorting, also with the weakness in the dollar, commodities should be surging. I do still believe that there will be a push before options expiration, but tomorrow support will be tested again. If this does break, it looks like $27 is the next stop.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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