Weekly Comparison Structure of the Dollar and Gold May 27

May 27, 2009: 1:08 PM CST

Per reader request, let’s take a quick look at the US Dollar Index and the Gold Market on a 3-year weekly chart basis, noting key Fibonacci levels and possible long-term targets.

Using Classic Technical Methods, we see that Gold is clearly in an uptrend as confirmed by higher highs and higher lows as well as the current structure of the 20 and 50 EMAs both being above the 200 SMA in the ‘most bullish orientation possible.”

Digging a little deeper, we see a possible Elliott Wave count that notes the Wave (1) was a 5-wave fractal affair and the Wave (2) retracement back into confluence support (50 EMA and 38.2% Fibonacci retracement – drawn inverse) was a 3-wave pullback.  This implies that odds favor a 3rd wave yet to come which – if it materializes – would take prices well beyond the $1,000 barrier.

It doesn’t take deep level analysis to assume that if the critical $1,000 resistance barrier is broken, price has a good chance of forming a trend move much higher.

A new momentum high formed in February which hints that higher prices are yet to come from a ‘momentum principle’ standpoint as well.

I’ve also drawn a confluence Fibonacci grid to note key areas of possible support should price turn down unexpectedly from these levels.  The first ‘line of support’ would be the 20 and 50 week EMAs at roughly $900 and $875.  Beneath that we would have loose confluence Fibonacci at the $840 level and then tighter confluence at the $800 level.

Moving from gold, let’s take a quick look at the US Dollar Index weekly chart.

I won’t go into as much detail as above in gold, but notice that the price has entered a possible inflection point (technical node) off the 50% Fibonacci retracement at $80 as well as the price projection target of the bear flag (which I mentioned in yesterday’s “Dollar Index Completes Bear Flag” post).

Being a technical decision node, it might be best to see what happens (who wins the supply/demand battle) off this level and then join the winning side instead of trying to be a hero to anticipate which side will win.  We could get a bounce off this level at least to the $82 area.

Trend-wise, we are in a far weaker position, having broken definitively beneath the 20 and 50 week EMAs along with the 200 week SMA.  Price is now in ‘open air’ to the downside with only Fibonacci retracement support to contain it… and plenty of resistance overhead.

We also may be breaking down out of what appears to be a possible head and shoulders formation.

I don’t like to give long-term targets – I much favor anticipating the ‘next likely swing’ and then moving from there, but it seems very likely that – given price continues lower and breaks the 61.8% retracement, we may see a retest of the $72 level many months from now (looking at the technical structure above).

For those interested specifically in Elliott Wave analysis of these and other markets, consider joining Elliott Wave International which offers a three-times per week updated count of these and other markets.

Let’s continue to keep an eye on the larger picture and watch for key signs of unexpected developments.

Corey Rosenbloom
Afraid to Trade.com

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10 Comments

10 Responses to “Weekly Comparison Structure of the Dollar and Gold May 27”

  1. Shuaib Arshad Says:

    It seems to me that the part of gold chart after Feb 08 shows inverted head and shoulders pattern, another bullish indication, hinting that we can see $1000+ gold soon.

  2. Robert Prechter's 40 page eBook on Gold and Silver Now Available | Afraid to Trade.com Blog Says:

    […] Prechter has a unique viewpoint that is slightly in contrast to my long-term technical forecasts (most recent update on the Gold and Dollar market) but it’s worth hearing from various perspectives to form your own analysis and opinion so […]

  3. ashu Says:

    There is almost a inverse relationship between the charts except in First Quarter of '09 any specific reasons for that …..

    ashu

  4. Corey Rosenbloom, CMT Says:

    Shuaib,

    You're right! I always tend to miss those chart patterns because I'm used to thinking of right-side up H&S.

    Taking a price projection off this pattern, with a $300 head to neckline distance, we would expect a move up to $1,300 level if the neckline at $1,000 is broken.

    Thank you for sharing!

  5. j0sh1ngU Says:

    would you be bullish on oil at these levels?

  6. Da_bears Says:

    opinion on oil? and count if you got one . thanks? if market goes down theoretically oil goes down. but you got dollar down also.

  7. Robert Prechter’s 40 page eBook on Gold and Silver Available | Penny Stock Trading System Blog Says:

    […] Prechter has a unique viewpoint that is slightly in contrast to my long-term technical forecasts (most recent update on the Gold and Dollar market) but it’s worth hearing from various perspectives to form your own analysis and opinion so […]

  8. j0sh1ngU Says:

    there cant be an inverted H&S at tops i thought. or they have less or no meaning at all

  9. Da_bears Says:

    opinion on oil? and count if you got one . thanks? if market goes down theoretically oil goes down. but you got dollar down also.

  10. Gold Quickly Closing in on $1,000 Again | Afraid to Trade.com Blog Says:

    […] previously discussed this very possibility which is occurring now in last week’s “Comparison of the Dollar and Gold” post. I also wrote a post that provided a link to download Robert Prechter’s (of […]