One striking development involving gold is the failure to regain its previous record highs against the robust yen and Aussie. Most importantly this week, gold did reach new highs against the euro, sterling and Swiss franc, yet will ultimately fail to close the week above those highs. The fact that gold was unable to close the week at new highs against these currencies, simultaneously with the unfolding global market sell-off, highlights the importance of gauging the secular momentum of the precious metal beyond in USD terms currency. Therefore, as gold steals the headlines via its performance against USD, it is helpful to scrutinize its performance against more robust assets (currencies) for a truer reflection of its ascent.
While the above analysis does not constitute a negative signal on gold, it sheds light on the preliminary signs of a temporary consolidationeven against the greenback. For more details on multi-FX approach to golds performance, see Chapter 1 of my book Currency Trading & Intermarket Analysis
Oil/EURUSD Ratio Warning Signal
Last week, we used the Oil/EURUSD ratio as a warning signal for oils eroding ability to maintain its gains with dollar weakness. Since then, the Oil/EURUS Ratio fell to 47 from last weeks 52, exposing the speed of the fuels decline relative to the rise in EUR (and the falling USD). Oils weakness despite recent USD damage highlighted oil speculators inability to drive up USD-carry trades, which was no different from US equity indices inability to regain those important retracement levels (10,335 Dow & 1,120 S&P500). And so we concluded that oil would be a major victim at the next bout of risk aversion. Today, oil plummeted by as much as $5/barrel to a 7-week low of $72.50. While we may see a rebound to as high as the 21-day MA of $78, the string of 6 (six) consecutive lower highs on weekly oil remains a solid case for the bears.
Yen's Perfect Desert Storm
The Yens Perfect Storm escalated overnight amid the combination of unexpected decline in Japanese unemployment and falling global equity futures following the Dubai fallout.
