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Archive for the ‘Gold’ Category

293homealone121107.jpgWell, maybe while you were getting ready for bed. The Federal Reserve Bank decided to make an emergency move this evening and cut the bank lending rate to 3.25 percent from the 3.50 percent it was at earlier. This move made by the Fed was meant to “try” and create some stability in the financial markets. Also, at the same time, Bear Stearns (BSC) is being bought out by JP Morgan (JPM) at a steal of a price. This last minute buyout and the move by the Fed (who also approved this buy out by guaranteeing the deal with $30 billion) had an immediate effect on the overseas market and crushed the dollar. The EUR/USD hit a high of 1.5905 and the YEN hit 12 year low against the dollar at 95.74. Gold also was trading (at time of posting) around 1,026 an ounce. (I guess there goes the gold teeth I was considering!)

One way to help you against the falling value of your dollar is to hedge against it with the other currencies like going long the Euro or even long the Yen. Any trading against the dollar seems to be the most logical move. When asked what should be done about the financial crisis in the US, Federal Reserve chairman Ben Bernanke said “I don’t know!” No wonder the dollar is crashing and the basic carry trade is dead.

Well, hedge your bet for now or wait and see if the fed moves some more on Tuesday with another cut of 75 basis point. Bernankes strategy seems to be trying to keep the economy supported and worry about inflation later. We may see on the EUR/USD 1.6000 before Tuesday if the market sees even more weakness. Also, the USD/JPY may see an even lower level below 95.00 as weakness in the dollar continues. Tomorrow is a new day.

~ G

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Call it the clash of the titans: the two hottest currencies head-to-head in a pair. The loonie has been outperforming the aussie in the long run. In the past couple of months it’s the other way around.

Let’s keep an eye on the pair. It may just bounce down from long-term resistance and gold could easily be the cause. A pull back in gold (or oil) could shift the dynamics.

Remember what affects gold prices:

  1. Turmoil (gold is used as a safe haven)
  2. Oil and other commodities (a positive correlation, often leading the others)
  3. The buck (a weak dollar spurs gold on)

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dominodice.jpg Back to our trades for the week, AUD/NZD is busting out of its squat little triangle … to the upside. You heard it here first! 😉 The aussie is being supported by gold this morning, which is being supported by a downturn in the buck as a result of weak U.S. data. Sort of a big domino effect.

 

I thought we might get a pop below, but it’s more of a roll of the dice. Nice thing is we can trade with the previous/long term trend now. If you buy, do so according to your buy signal using whichever method you are using, making sure it counts as a “breakout”. Notice the bullish divergence we had going into this …

 

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One last warning bell, to start the week. There’s lots of good trades going one which may not be good to start participating with if you’re not in it.

 

Take the aussie. Lot’s of love there, with the goodness of gold and the dollar getting whacked upside the head. But stand back and look at the big picture before jumping in a new position.

 

Below is the aussie on the daily timescale (1 year chart). The former, major top is an area of resistance. The pair is grossly overbought.

 

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Below is the pair on an hourly timescale, also overbought but notice the successively higher lows on the slow stochastics. To me this is an extra flag in the “Watch out for an over-bought oscillator” realm of thinking.

 

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Of course, the trend is crazy up and I love it and think it will continue doing so. But, right now there is extra risk of a correction to watch where you step.

 

Oh, and don’t forget: contraryism holds that when most of the masses agree on a direction they are wrong at turning points. Most investors are long the aussie, something more to chew on given the discussion above. Below i a chart from a forex dealer showing the ratios for long-short for their clients.

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