Originally published by Chamber of Merchants
Briefing
The most important thing right now is that I need a strong, aromatic, smoking cup of delicious coffee…
Recent Updates
I don’t usually do short term charting, but the recent developments in the US dollar, euro and Gold have been pretty exciting since we’re very close to potential reversal points in all of them (this includes the yen, pound and Australian dollar).
Merchant’s Insight - Bond Market
The bond market took a breather for a day or two, however it appears that the U.S. 2-Year and U.S. 5-Year US government bond yields are continuing their spike:
It’s not across the board at present. Let’s see if the U.S. 10-Year and U.S. 30-Year follow suit…
The US Dollar
The dollar is testing support on the Dow Jones FXCM Dollar:
As discuss in the previous post, a break below 12359.50 would signal a high probability reversal in the US dollar down to the lower support level.
In current price action, the US Dollar Index is trading a bull flag, however, it does appear (not a definite) to be losing steam. In the event it’s running out of momentum, we can expect the dollar to test the lower price channel limit. If it fails to find support the retracement too 100.6 will ensue. Failing to hold 100.6, we can assume that the dollar reversal is most likely in progress.
This may largely be due to the development in the euro.
Euro
European Central Bank President, Mario Draghi, told a European Parliament committee on Monday that the ECB needed to maintain its current level of monetary support to bring Euro zone inflation back to its target of almost 2 percent.
This removes the previous uncertainty of whether or not the ECB was going to extend their bond purchasing program early next year. When chatter hit the market of a possible reduction in monetary stimulus (reduced bond buying) the euro began a decline due to increased economic risk. Also, the market just loves cheap money and any threat of removing that opiate causes all kinds of lovers’ quarrels in the forex market.
Hence, we may be seeing the bottoming out in the euro:
It may be far to early to call, however the news of a continued monetary stimulus will bolster the confidence in the euro and see the dollar and gold change trends.
Interestingly, the ECB will decide on December 8 whether and how to extend its 80 billion euros ($85 billion) monthly bond purchases. Sources have told Reuters the program is all but certain to continue beyond its current March deadline.
At the same time, news of the completed Sharia Gold Standard should break around 6th December if my sources (shout out to S.S and her academic neighbour) are correct.
P.S. Economically, the euro should in fact depreciate on news of continued monetary expansion since the euro will in fact be continued to be diluted and subsequently lose purchasing power. Investors should dump a currency when it is being printed, yet they crave it for the trade… go figure.
Gold
As discussed before, the price of gold which is trading with the euro and against the US dollar (for now) is trending up against the $1216 resistance. Even if it breaks past the $1216 mark, I believe we would need to see the price of gold and the 49 day Triple Exponential Moving Average (thick blue line) break above $1230 to call the bounce.
In the bigger scheme of things, once we sustain a breakout above $1230, we would be on track to test the upper resistance of $1260 again.
This may take a few days…
Good night or good morning, depending on where in the world you are.