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Archive for 30/11/2009
Oh my, Dubai
30/11/2009 by Philinje.
The first glimmer of a new wave of problems popped up, just as America was sitting down to its Thanksgiving holiday. The net effect is that JPY carry trade reversed to some degree, causing declines in Yen currency pairs and especially the EUR/JPY, which came closer to the magic 120 number where carry trades might unwind in earnest.
Interestingly, gold also got hit with a quick decline to $1140. That level was only breached to the upside early the same week, and now looks like support. Prices drove straight back up to settle at $1176. The big question is, Is the $1190 level a local top?
Clearly, gold is viewed as a risk asset at present. It’s ironic, but all the evidence so far points to the current high price being fueled by speculation more than anything else. Also a bit strange is that the dollar did not shoot up the way the Yen did. Either this says it is more resistant to carry trade unwinding or possibly that Europe is more exposed to probelms in the Middle East. But EUR/USD came down only a bit, enough to take the wind out of the breach of 150, and not nearly as much as EUR/JPY.
General US equities declined too, and that caused just a moderate bump up in the dollar index. So really, it looks like the dollar is extremely weak, as it’s already drifted back below 75.
This brings up an alternate scenario that is being tracked by some E-wave experts. Thanks to Art Roldan, a subscriber at Ron Rosen’s site, a new Elliott Wave analysis says we might have seen the start of a minor wave 4 down 10 $1070 and then a wave 5 up will take gold to the $1300 area, which is the projection from the inverse Head and Shoulders pattern.
If this scenario plays out, with a possible high next March-April, there might still be a decline in gold into next October. And it might still be a major wave C, but that starts to look less likely. On the other hand, if a current decline in gold carries past $1070 and let’s say past $1020, then the likelihood of wave C down remains high.
Given how weak the dollar looks, I give either scenario 50-50 chances. If there is another financial scare in the US, that might cause a dollar spike from the dollar carry trade unwinding, so certainly we can’t rule this out. But the Fed has to monetize several trillion of debt in the next 12 months, and that means a lot of downward pressure on the dollar.
By the way, gold was breaking out to new highs in a number of currencies, including EUR and GBP, but the Dubai scare has temporarily knocked prices down. Given that both currencies have remained relatively strong against the dollar, the gold price action has been impressive.
Let’s see if we get a correction down to $1070 - 1020, and let’s see what happens when the US traders show up at work later today.
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