Australian gold stocks rally despite stronger Dollar

Interesting turn in the gold/dollar saga.

The US Dollar Index is strengthening, testing resistance at 91. Bullish divergence on the Trend Index indicates buying pressure.

Dollar Index

The Dollar is strengthening despite rising crude prices which generally weaken the Dollar.

WTI Light Crude

Spot Gold is retreating from resistance at $1350/ounce. Bearish divergence on the Trend Index warns of selling pressure. Expect a test of $1300.

Spot Gold

But Australian gold stocks are strengthening. The All Ordinaries Gold Index is rallying to test resistance between 5000 and 5100.

All Ordinaries Gold Index

That’s because the Australian Dollar is falling at a faster rate than the Dollar Index is strengthening.

AUDUSD

So the price of gold in Australian Dollars is actually rising.

Spot Gold in Australian Dollars

Leaving Australian gold stocks unperturbed by the strengthening US Dollar.

Dollar falls, Gold rises

The Dollar weakened, with the Dollar Index testing support at 88.50. Respect of new resistance at 91 — the last primary support level — confirms the strong down-trend. Completion of another Trend Index peak below zero would further strengthen the signal.

Dollar Index

* Target calculation: 91 – (95 – 91) =87

The extent of the Dollar’s fall is best illustrated against major trading partner China’s Yuan: a 9.5% fall in just over two years. And that is despite rising US interest rates and a $120 billion increase in China’s foreign reserves over the last year.

USDCNY

Gold is again testing resistance at $1350. Breakout would signal another primary advance, with a target of $1450*. Follow-through above $1375 would confirm.

Spot Gold

* Target calculation: 1350 + (1350 – 1250) = 1450

The All Ordinaries Gold Index has been undermined by the strong Aussie Dollar. But recovery above 5000 would signal another advance.

All Ords Gold Index

Gold Bounces

Gold bounced off support at $1240/ounce, ending the week with a strong rally. Penetration of the descending trendline would indicate the down-trend has weakened, while breakout above $1300 would suggest another advance. Twiggs Trend Index close to zero still indicates hesitancy.

Spot Gold

The greenback is weakening which is bullish for gold. Dollar Index reversal below 93 (and the rising trendline) would indicate another test of primary support at 91. A major Trend Index peak below zero would warn of another primary decline with a target of 87*.

Dollar Index

* Target calculation: 91 – (95 – 91) =87

Australia’s All Ords Gold Index is headed for another test of long-term resistance at 5000. Breakout would signal a primary advance.

All Ordinaries Gold Index

A weakening Aussie Dollar would strengthen demand for gold stocks. Respect of resistance at 77.5 US cents by the current bear rally would warn of a decline to test primary support at 73.5.

Australian Dollar AUDUSD

Gold finds short-term support

The greenback continues its bear market rally, assisted by the new tax bill and the December Fed rate hike. Breakout above resistance at 95 would signal a primary up-trend, a strong bear signal for gold, but the Dollar still has to overcome concerns over North Korea.

Dollar Index

Gold found short-term support at $1240/ounce and recovery above the descending trendline would indicate that the down-trend is weakening. Breach of primary support at $1200 is unlikely but would be a strong bear signal, warn of a primary down-trend.

Spot Gold

The All Ords Gold Index is also correcting. Breach of primary support at 4300 would warn of a primary down-trend.

All Ordinaries Gold Index

But I expect this to be cushioned by further weakness on the Aussie Dollar.

Australian Dollar/USD

Helped in part by a declining yield differential between Australian and US government bonds.

Differential between Australian and US 10-year Government Bonds

Gold falls

Gold broke support at $1250/ounce, warning of a test of primary support at $1200. Breach of primary support at $1260 remains unlikely but would warn of long-term down-trend.

Spot Gold

The greenback rallied on passing of the new tax bill. A test of resistance at 95 is now likely. Breakout above 95 would signal a primary up-trend, bearish for gold.

Dollar Index

Long-term Treasury yields are gradually strengthening, with the 10-year expected to test resistance at 2.50%. Breakout above 2.5/2.6 would signal a primary up-trend which again would be bearish for gold.

10-Year Treasury Yield

A long-term chart of gold shows the precious metal retains its bullish bias. There is strong resistance at $1350 opposed by a broad band of support between $1050 and $1200. Respect of $1200 would signal another test of resistance, while breach of $1150 would warn of a primary down-trend.

Spot Gold

The All Ords Gold Index is also correcting but is somewhat cushioned by the falling Australian Dollar, now at 75 US cents. Respect of the rising trendline would be bullish, while breach of primary support at 4300 would warn of a down-trend.

All Ordinaries Gold Index

Falling Aussie Dollar boosts Gold stocks

The Aussie Dollar is tanking, falling from a September high of 81 US cents to below 76 US cents. Test of support at 73.50 is likely.

Australian Dollar AUDUSD

The All Ords Gold Index ($XGD) responded to the weakening Aussie Dollar, despite a lackluster performance from gold. Breakout above 5000 would signal a new primary advance, offering a target of 5650*.

All Ords Gold Index ($XGD)

* Target calculation: 5000 + ( 5000 – 4350 ) = 5650

Gold softens as market contemplates another rate rise

The Dollar continues to strengthen, with the Dollar Index testing short-term resistance at 95. Another rate rise from the Fed in December would strengthen the Dollar further. Medium-term target for the extended rally is 97.

Dollar Index

Spot Gold is under selling pressure, with the Trend Index declining to zero, and is likely to test support at $1260/ounce. Breach of support would warn of another decline, with a target of $1200.

Spot Gold

But the All Ords Gold Index ($XGD) is rising, headed for a test of resistance at 5000. Breakout would signal a new primary advance.

All Ords Gold Index ($XGD)

…Largely because the AUD price of gold is rising …as the Australian Dollar weakens. There are still signs of resistance though, with the Trend Index unable to cross above zero. Reversal below $1620 would be a strong bear signal.

Gold/AUD

Gold hurt by Euro fall

From FXWire:

The euro dipped against [the] dollar on Thursday as the European Central Bank’s decision to extend its bond purchases into 2018 at a reduced rate spurred selling of the single currency.

Euro/USD

The Dollar spiked upward on the Euro fall, with the Dollar Index breaking resistance at 94 to signal another (bear) rally. Target for the extended rally is 97.

Dollar Index

Spot Gold fell in response to the Dollar, testing support at $1260/ounce. Penetration of support and the rising trendline would warn that the up-trend is losing momentum.

Spot Gold

But the Euro price of gold hasn’t budged.

Gold/EUR

Nor has the price of gold in Australian Dollars.

Gold/AUD

Which is why the All Ords Gold Index ($XGD) remains bullish, building a solid base for further gains. A higher low suggests buying support and breakout above 5000 would signal a new primary advance.

All Ords Gold Index ($XGD)

ASX 200 bearish consolidation

The big banks fell sharply on news of a new levy on bank liabilities in the latest budget. At this stage the ASX 300 Banks Index merely shows a secondary reaction. Breach of 8500, however, would signal a primary trend reversal, offering a medium-term target of 8000*.

ASX 300 Banks

* Target: 8500 – ( 9000 – 8500 ) = 8000

Resources stocks compensated, with the ASX 300 Metals & Mining Index rallying to test resistance at 2850/2900. Breakout is unlikely given the weak lead from iron ore. Reversal below 2700 remains likely and would strengthen the bear signal for resources.

ASX 300 Metals & Mining

Iron ore formed a bearish consolidation above support at $60. Breach would offer a short-term target of $50*.

Iron ore

* Target: 60 – ( 70 – 60 ) = 50

Selling of the Aussie Dollar continues, with a medium-term test of primary support at 71.50/72.00 now likely.

Aussie Dollar

Consolidation of the ASX 200 above support at 5800 is a bearish pattern. Breach would signal a correction to test primary support at 5600*. Twiggs Money Flow still indicates long-term buying pressure and only a fall below zero would warn of a reversal.

ASX 200

* Target medium-term: 5800 – ( 6000 – 5800 ) = 5600

Will the RBA cut interest rates in May?

From Justin Smirk at Westpac:

The headline CPI surprised in Q1 falling 0.2% compared to Westpac’s forecast for +0.4%….. The annual rate is now just 1.3%yr compared to 1.7%yr in Q4.

The core measures, which are seasonally adjusted and exclude extreme moves, rose 0.2% compared to the market’s expectation of 0.5% rise…. The annual pace of the average of the core inflation measures is now 1.5% from 2.0% in Q4 (Q4 was unrevised) and is the lowest print we have yet seen from this measure.

From Jens Meyer at The Age:

Today’s weak inflation numbers are a game changer for the Reserve Bank that will trigger a rate cut, says JPMorgan head of fixed income and foreign exchange strategy Sally Auld.

The investment bank now expects the RBA to cut by 0.25 percentage points next week and to follow this up with a further 25 basis points cut in August, taking the cash rate to 1.50 per cent.

Smirk disagrees:

…..But low inflation, on its own, is not a trigger for a rate cut. Sure, it unlocks the interest rate door for the RBA should it decide it needs to walk through that door as the Bank would not have to wait for another CPI update before doing so. However, it does not mean that the RBA will cut rates! A rate cut is dependent on local economic conditions demanding a rate cut. With unemployment on a new downtrend this is not so at the moment and we suggest that the RBA is waiting to see a new weaker trend in domestic activity and employment before it would embark on such a strategy.

Source: Australian 14 CPI 2016 | Westpac

Source: Three reasons for the Reserve Bank of Australia to cut official interest rates in May

Australian Dollar during the 1997 Asian financial crisis

Performance of the Australian Dollar during the Asian financial crisis. The falling Dollar acted as a buffer, protecting the Australian economy from the Asian contagion.

AUDUSD 1996-1998

A similar 25% fall from today’s 72 US cents would offer a target of 54 US cents. No science to this. Simply speculation.

ASX 200 rallies despite weaker AUD

The Australian Dollar followed through below support at $0.8650, confirming a (primary) decline with a target of $0.80*. Declining 13-week Twiggs Momentum below zero strengthens the bear signal. Recovery above $0.8650 is unlikely.

AUDUSD

* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80

The ASX 200 respected support at 5300. Follow-through above 5450 would suggest a fresh advance. A 21-day Twiggs Money Flow trough at zero indicates short-term buying pressure. Reversal below 5300, however, would test primary support.

ASX 200

The ASX 200 Financial sector (ex-REITs) is the largest constituent of the ASX 200 index. 13-Week Twiggs Money Flow oscillating above zero suggests healthy buying pressure despite the Murray Inquiry’s likely call for increased bank capital [AFR]. The sector index successfully tested support at 7050, indicating another test of 7400.

ASX 200 Financial ex Property

ASX under pressure

The S&P 500 continues to test resistance at 2050, the upper bound of the broadening wedge. Rising 13-week Twiggs Money Flow suggests buying pressure. Breakout would offer a target of 2250*. Reversal below 2000 is less likely, but would warn of another correction.

S&P 500

* Target calculation: 2050 + ( 2050 – 1850 ) = 2250

The CBOE Volatility Index (VIX) indicates low risk typical of a bull market.

S&P 500 VIX

Dow Jones Euro Stoxx 50 is testing resistance at 3140. Breakout would indicate an advance to 3300. 13-Week Twiggs Money Flow oscillating around zero suggests indecision. Respect of 3140 would test primary support at 3000.

Dow Jones Euro Stoxx 50

The Shanghai Composite Index retraced to test support at 2440, while declining 13-week Twiggs Money Flow indicates medium-term selling pressure. Reversal below the rising trendline at 2400 would warn of a correction, while respect would suggest trend strength.

Shanghai Composite

Hong Kong’s Hang Seng Index is weaker. Reversal below 23000 would warn of a test of primary support at 21200/21500. Twiggs Money Flow (13-week) reversal below zero would also be a strong bear signal.

HSI

The ASX 200 is undergoing another correction. Respect of support at 5250/5300 would indicate reasonable trend strength, but declining 21-day Twiggs Money Flow suggests medium-term selling pressure. With both Energy and Metals & Mining sectors under pressure, a test of primary support at 5120/5150 is likely.

ASX 200

The Aussie Dollar is also falling, having reversed below primary support at $0.8650 to signal a decline to $0.80*.

Aussie Dollar

* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80

ASX rallies while Aussie Dollar finds support

The Australian Dollar is consolidating between (primary) support at $0.8650 and resistance at $0.8900. Respect of support suggests another test of $0.89, while a failed swing (reversal below $0.8850) would warn of a downward breakout. Continuation of the primary down-trend is likely and breach of $0.8650 would signal a decline with a target of $0.80*.

AUDUSD

* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80

The ASX 200 is headed for a test of 5660. Retracement is likely, but respect of support at 5440 would strengthen the bull signal. Rising 21-day Twiggs Money Flow continues to indicate medium-term buying pressure. Reversal below 5440 is unlikely, but would warn of a test of 5250.

ASX 200

The ASX 200 VIX continues to indicate low risk typical of a bull market.

ASX 200

ASX breaks resistance

The Australian Dollar continues to test resistance at $0.8900. Tall shadows in the past few weeks suggest committed sellers. Breach of primary support at $0.8650 would warn of another decline. 13-Week Twiggs Momentum below zero also indicates a primary down-trend.

AUDUSD

* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80

ASX 200 broke resistance at 5440, suggesting another test of 5660. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure. Reversal below 5440, however, would warn of a test of support at 5250.

ASX 200

The ASX 200 VIX below 15 continues to indicate low risk typical of a bull market.

ASX 200

Aussie Dollar and ASX find support

The Australian Dollar is testing resistance at $0.8900, but the primary trend is down. Breakout would suggest a bear rally, while respect would warn of another decline. 13-Week Twiggs Momentum below zero indicates a primary down-trend. Breach of primary support at $0.8650 would offer a target of $0.80*.

AUDUSD

* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80

ASX 200 penetrated its descending trendline, suggesting the correction is over. The index would be further buoyed by a rally of the Aussie Dollar. Bullish divergence and recovery of 21-day Twiggs Money Flow above zero indicates medium-term buying pressure. Breach of resistance at 5350 would strengthen the bull signal. Reversal below 5250, however, would warn of a test of primary support at 5000/5050.

ASX 200

* Target calculation: 5350 – ( 5650 – 5350 ) = 5050

The ASX 200 VIX at 15.5 continues to indicate low risk typical of a bull market. A significantly higher trough is unlikely, but would be a bearish sign.

ASX 200

Aussie & Euro rally, but for how long?

The Aussie Dollar continues to pressure primary support at $0.8650. 13-Week Twiggs Momentum below zero indicates a primary down-trend. Respect of resistance at $0.89 would strengthen the signal. Breach of primary support would confirm, offering a target of the 2010 low at $0.80.

Aussie Dollar

* Target calculation: 87 – ( 94 – 87 ) = 80

The Euro retraced to test its new resistance at $1.28. Declining 13-week Twiggs Momentum (below zero) confirms a strong down-trend. Respect of resistance would warn of another decline, while breach of medium-term support at $1.25 would target the 2010/2011 lows of $1.20.

Euro/USD

* Target calculation: 1.28 – ( 1.40 – 1.28 ) = 1.16

ASX and Aussie Dollar rally

The Australian Dollar found support at $0.8650/$0.8700. Respect of resistance at $0.8900, however, would suggest another decline. 13-Week Twiggs Momentum below zero warns of a primary down-trend. Breach of primary support at $0.8650 would offer a target of $0.80*.

AUDUSD

* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80

The ASX 200 rallied in line with short-term buoyancy on the Aussie Dollar. Bullish divergence on 21-day Twiggs Money Flow and recovery above zero indicates medium-term buying pressure. But the trend remains down and failure of (short-term) support at 5120 would warn of a test of primary support at 5000/5050. Breach of the declining trendline is unlikely, but would suggest that the correction is ending. Follow-through above 5350 would confirm.

ASX 200

* Target calculation: 5350 – ( 5650 – 5350 ) = 5050

The ASX 200 VIX continues to indicate low risk typical of a bull market.

ASX 200