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Daily Spot: Currencies – If, Then… Market Timing

Daily Spot: Currencies

By Rod David | October 18, 2010 - 7:13 pm

A weekly summary of one complex, including daily updates of other developments elsewhere.

Dollar Basket Dec (DXZ) Yet another opportunity to bottom is unfolding. The bullish potential seems more assured for four reasons. Reasons 1 and 2 are that the pattern appears to be deciding between whether to form a durable bottom, or just a multi-week corrective rally. Reason 3 is the bearish patterns among various other currencies. Reason 4 is Gold’s outlook, covered below.

As for the Dollar index, Thursday’s 76.65 gap down was probed Friday, but the probe left no unfinished business below. Friday ended with a recovery to “higher prior lows.” Thursday’s opening gap, however, still requires a retest after testing higher prior lows – that is, if a durable bottom is forming.

Otherwise, a recovery is free to extend without further delay, but only temporarily for several weeks. Its resolution would be to resume the decline. Monday’s lack of follow-through to gapping up suggests a durable bottom will be attempted. Probing 76.65 but not recovering would suggest the near-term bearish potential is greater.

Gold Dec (GCZ) The path to retesting 1386.40-1388.00 included a potential detour down to 1352.50. It was attacked overnight to within 70 cents before recovering to fill the gap back to Friday’s 1371.60 close. The regular session never dipped under 1362.00. Optimism remains alive (as the inverse relationship with the Dollar keeps alive the potential to retest its lows before each reverses).

30-year Treasury Dec (USZ) Monday’s gap up left outstanding unfinished business back Friday’s 131’06 close. It also indicated that sellers are refueling for a bigger downleg, when extending to 130’10 could have drained sellers of their selling pressure.

Crude Oil Nov (CLX) Monday’s gap up rejected Friday’s close under 81.55. It was suspicious at the time, but the open made clear that near-term momentum was not extending down. The close probed 83.00, and 84.00 is likely also to be probed before sellers can regain control.

Natural Gas Nov (NGX) Gapping down to new lows on Monday and trending down, after Friday had done the same, is no way to form a bottom.

Share your questions and comments on this post in the blog, or in the chartroom…

Daily Spot coverage schedule is: Currencies (Mon), Metals (Tue), Energies (Wed), Rates (Thu), Softs (Fri, coming).

Posted in Daily Spot