Something most gold bugs are not willing to admit is the fact that although the price of gold printed new all time highs the US-Dollar didn’t make new lows. The inverse trading relationship between gold and the $USD for the time being has stopped to be picture perfect. I updated the monthly USD$ chart on my public list and labeled the current chart development as a divergence. In Technical Analysis divergences are nothing you should base your trading decisions on. They should only be used as first signs something might not develop as expected. The key word here is ‘expected’. For now overhead resistance in the USD$ chart is still overwhelming. Put another way, the downtrend is still firmly in place.
A divergence often is the first sign a change is about to develop. As a general rule the most vicious moves are unsustainable counter trend moves. In this case it would be a short squeeze in the US-Dollar.
I am not in the business of predicting price moves and trends. My goal is to be disciplined. Objectively identify trends and to position myself accordingly. That being said the development that probably would inflict the most damage to the majority of traders would be a huge US Dollar rally in 2010. Will it happen? I have no idea and I do not care. The important thing is to be mentally prepared for this potential scenario. Being prepared is a good way to avoid getting hurt. The reason I am mentioning this scenario is because I am feeling it is a highly ‘unexpected’ one. Traders are not positioned accordingly. If such a rally would indeed materialize they would have to reverse or close out positions.
A while ago I posted a technical analysis of the Euro and the US-Dollar currencies. I still think the big picture chart pattern for the Euro looks bullish. A counter trend run up in the USD wouldn’t negate the overall picture. It would simply mean more time is needed to complete the triangle chart formation in the Euro currency.
Up-to-date $USD Chart on my public list.
Keep it simple. Follow the charts.
Have a great weekend!
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