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Tuesday, 9 November 2010

Consolidation and Precious Metals

As a general rule if USD is in a wave up, and ES / SPX is also in a wave up, then ES / SPX moves sideways until the USD wave up finishes, and then ES / SPX resumes rising. It looks to me as though we have been seeing exactly that over the last two days, with USD bouncing sharply and ES / SPX moving sideways.

It now looks to me as though that USD bounce is over for the moment, as EURUSD has hit the obvious support trendline and bounced there. The next upside target is slightly over 1.43 but to reach it, the main USD support trendline will have to break on a weekly basis, which may limit the next USD wave down:

GBPUSD has also hit the obvious channel support trendline and bounced there. The next upside target is over 1.64, subject to the same USD caveat as EURUSD:

It could well be that USD will find an interim low here of course. There are increasing rumblings in Europe about QE2, and the lack of US leadership in finding some balance in the world economy rather than just hosing the world with freshly printed dollars. Obviously the Europeans have a point, and the US policy of USD devaluation and money printing to fuel an asset bubble is likely to lead to increasing problems with the trade partners (and creditors) of the US.

On ES the action over the last two days looks like a bull flag, and if EURUSD does bounce strongly then I'm expecting to see a move towards the top of the ES rising channel. I don't know if we can make it to the top trendline, which will be in the 1260 area by the end of the week, but I'm expecting that we should see the SPX IHS target in the 1244 - 1250 area hit this week, and that we'll make the next interim high there or higher within that rising channel:

One asset class that has not been trading sideways while USD has been bouncing is precious metals, which have been flying up, and are now within striking distance of my targets. The upper trendline of the gold rising channel is currently in the 1470 area, and it seems likely that this will be hit within weeks if not days:

Silver is even closer to my target, and is rising so fast that I'm becoming concerned it may go straight through it. The (continuation) IHS target is in the 30 area and I have my target rising resistance trendline in the 29.80 area this week. My theory is that precious metals will make a major interim top when these targets are hit. We'll see:

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