By Sol Palha
In the last two weeks of December we made the following comments
In the short to intermediate time frames, we would like to point to several new factors, which suggest that Gold could potentially pull back more, the dollar could mount a stronger than expected rally which should Lead to a rather strong pull back in the Euro and other competing currencies. Certainly, the dollars rapid move from 74.57 to a high of 78.50 has caught a lot of traders with their trousers down. Full Article

And on the 16th of December we made the following comments
In the short to intermediate time frames the dollar is projected to mount a rally; it has already mounted a rather decent rally from its lows. Gold and most competing currencies are expected to pull back. We mentioned this in our recent article “The Gold bull; time for a breather or? ”. Since then Gold has already shed 100 bucks and the Euro has dropped from a high of 151.37 to 145.33 in a few days, a huge move for any currency. The sentiment against the dollar is extremely negative and has hit an extreme note; extreme movements always produce countermoves that are equally extreme if not stronger. Thus the dollar could potentially mount a very strong rally surprising even the most bullish of optimists.

In fact in December alone we published 3 articles on Gold, the Euro and the dollar a rare anomaly as we normally do not publish more than one article per month on a given topic. Since then the Euro has pulled back tremendously; from low to high it has shed over 7%. This is a huge move when one considers that it has taken place in less than 30 days. The dollar from low to high has tacked on over 6% and Gold has shed roughly 137 dollars.

So where do we stand now?

The dollar is very close to hitting a critical point; it needs to close above 78.50 on a weekly basis. A weekly close above 78.50 will be the first sign that the dollar is getting ready to potentially mount a much stronger rally. We stated in previous articles and repeatedly warned our subscribers that a stronger dollar would eventually affect the equity markets.

Initially, the Markets ignored the strength in the dollar and traded higher in tandem with it, but now the tide has turned and the action of the last 3 days, indicates that the markets are long overdue a correction.

The Euro demonstrated further weakness by being unable to re test the 146 ranges; instead after trading as high as 145, it reversed course and traded as low as 140 before stablising.

A monthly close over 81 and a weekly buy signal from our indicators (weekly buy signals are based on 4-6 years worth of data, with each bar representing one week’s worth of data) would be one of the strongest signals, we could get in terms of the dollar mounting a stronger than expected rally.

On the same token a weekly sell signal with a monthly close below 140 for the Euro would be a very strong indication that the Euro could trade down to the 130 ranges and possibly spike as low as 125 before attempting to put in a bottom.

If Gold trades below 1080 for 2-3 days in a row, it should Lead to a test of the 980-990 ranges. A weekly close below the 950-970 ranges would be the first sign that Gold could potentially mount a much stronger correction than most are expecting.

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