Best of the Week
Most Popular
1.Will UK Interest Rate Rises Crash House Prices? - Nadeem_Walayat
2.Full on Crash Alert for Major World Stock Markets... - Clive_Maund
3.Gold And Silver Market Bottoming? Big Rally Imminent? Reality Check Says NO - Michael_Noonan
4.The Coming Silver Price Rally Will Outperform All Previous Ones - Hubert_Moolman
5.The Trigger For The Upcoming Stock Crash - Harry_Dent
6.Imploding Department Store Results - James_Quinn
7.Dr. Copper is Speaking, are you Listening? ... - Rambus_Chartology
8.Pandemonium in the Stock Market, Dow falls 1,000 points in a week - EWI
9.Asia's Whirling Dervish of Devaluations Has Encircled China's Exports - Keith_Hilden
10.China Weakens the Yuan; Rattles Global Stock and Financial Markets - Gary_Dorsch
Last 5 days
The Real Threat from China’s Stock Market Crash - 2nd Sept 15
How Our “Mixed Economy” Created These Mixed-Up Markets - 2nd Sept 15
'Gravity' Is Returning to Stocks and Bond Markets - 2nd Sept 15
OPEC Divorce And Self-Destruction Thanks To Saudi Crude Oil Strategy? - 1st Sept 15
The Beginning Of A New Financial / Stock Market Cycle - 1st Sept 15
Three Things Every Master Trader Knows About Trading Options - 1st Sept 15
Chinese Yuan Revolution? - 1st Sept 15
Take Advantage of Record-High Auto Sales… Before This Bubble Bursts - 1st Sept 15
Pondering Hitler's Legacy - 1st Sept 15
Mainstream Media Goes Berserk - 1st Sept 15
Your Decisive Stock Market Plan to Follow Whilst Most Investors Shiver With Fear - 1st Sept 15
Are There Stock and Financial Markets Investing Opportunities For The Remainder Of 2015 - 1st Sept 15
Crude Oil Price Forecast 2015 and 2016 - 1st Sept 15
REPO Window Hidden $Trillion QE Monthly Volume - 31st Aug 15
Silver and Warnings From Exponential Markets - 31st Aug 15
Stock Market Calls Fed’s Bluff - 31st Aug 15
Why Some ETFs Led the Stock Markets Down Last Week - 31st Aug 15
Stock Market Collapse - Take The Opportunity To Bail Before It’s Too Late! - 31st Aug 15
The Most Important Market Chart on The Planet - 31st Aug 15
Stock Market 50% Retracement - 31st Aug 15
Stock Market Crash Red Alert for 2nd Downwave... - 31st Aug 15
Independant Scotland 1 Year on, UK Civil War If the SNP Fanatics Had Succeeded - 30th Aug 15
Gold’s 7 Point Broadening Top - 30th Aug 15
The Day the Stock Market Shook the Earth: Takeaways From the Dow’s 1,000-Point Drop - 30th Aug 15
Gold Price Rally Marked by Short Covering - 30th Aug 15
Aging Stocks Bull Market - 29th Aug 15
Economic Destabilization, Financial Meltdown and the Rigging of the Shanghai Stock Market? - 29th Aug 15
The Stocks You Should Be Buying After the Market Drop - 29th Aug 15
How I Learned to Stop Worrying and Love Market Fluctuations - 28th Aug 15
China's Yuan Devaluation: Why It Was "Expected" - 28th Aug 15
Stocks Go Nuts But the Question Remains – Will the Rally Stick? - 28th Aug 15
Fed’s Stock Market Levitation is Failing - 28th Aug 15
The Eight Energy Systems Driving The Stock Market Rout - 28th Aug 15
Silver Sold, then Squeezed - 28th Aug 15
U.S. Economic Fundamentals 'Look Good' - Bullard of St. Louis Fed - 28th Aug 15
Stock Market Margin Calls Mount - 28th Aug 15
Einstein, Physics, Gold and The Formula To End Economic Decay - 28th Aug 15
The 10 Best Stocks for Options Trading Plays in This Market - 28th Aug 15
Economics of a Stock Market Crash - 28th Aug 15
Currency Wars Detonate; Gold Refuses to Budge - 28th Aug 15
UK Immigration Crisis Hits New Record, Trending Towards Becoming a Catastrophe - 28th Aug 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Global Stocks Slide

Rising Euro, Falling Dollar, Market Correlations Turned

Stock-Markets / Financial Markets 2012 Dec 28, 2012 - 07:18 AM GMT

By: P_Radomski_CFA

Stock-Markets

This week has brought in some calm after recent declines in the precious metals sector. Everybody seems to be waiting for some more decisive moves (both in the markets and on the part of the government, as the “fiscal cliff” issue has not been resolved yet), but these are not very likely before the beginning of the New Year.


Meanwhile, currency markets have been moving in the direction that makes precious metals investors happy – or should make them happy, were the situation “normal” – i.e. were the correlations between precious metals and the U.S. dollar strong and negative. Quite unfortunately, the situation is far from normal, but this is likely due to the abovementioned “fiscal cliff” problem and the uncertainty caused by the lack of final solution. Let us then move on to the technical part of today’s essay and see what we can figure out from the charts and correlations – we’ll start with the euro’s long-term chart (charts courtesy by http://stockcharts.com.)

Recall that two weeks ago, we had discussed that if the index closed above 132, the breakout would be confirmed and higher values likely. A small decline was seen last Friday, but the Euro Index is once again above the 132 level. If it closes the week in this trading range, the breakout above the September high will be confirmed and a further move to the upside likely. The 138 level appears to be within reach if this holds true. All-in-all, the Euro Index picture this week has bearish implications for the dollar.

Now, let’s move on to the U.S. currency – we’ll start with the medium-term chart.

A consolidation has been ongoing for over a month, and the index now appears ready to move lower. The decline and consolidation here are a reflection of the upswing and consolidation seen recently in the Euro Index.

Let’s have a look at the short-term USD Index chart now.

In the chart, there is an interesting development. A small rally lasting a few days has been seen and this makes the current situation quite confusing. The cyclical turning point is upon us and if it wasn’t preceded by a pullback, higher values would be likely to follow. The very short-term trend however has already been to the upside, so we could see a reversal and lower index values. (The Euro Index could continue to rally without a pause as well, or more precisely, after a small pause that is not visible on the above chart that is created based on weekly candlesticks.) In short, it seems that lower values are more than likely to be seen in the USD Index. If the precious metals begin to respond positively to this weakness in the dollar, the short-term picture could quickly become bullish for gold, silver and mining stocks.

To put the above analysis into proper perspective, let’s check the current correlation values.

The Correlation Matrix is a tool which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector.

The Correlation Matrix is quite confusing this week as it shows that the coefficients have truly turned upside down. They are pretty much neutral for silver when it comes to the 30-day period, but clearly upside down for the 10-day one, as well as for gold and the precious metals mining stocks.

The strangest picture here is between gold and the USD. Gold generally moves opposite of the USD Index but has been pretty much in tune with it for the last 30 days and has moved in the opposite direction of stocks. In short, the situation is far from normal. However, it seems that this situation will turn back to normal quite soon and the chart below explains why.

The decline in the above chart does quite a good job in representing the simultaneous slide in the dollar and the price of gold (the thing that made the correlations turn upside down in the past 30 trading days). On the above chart we see that the decline is excessive and likely to end or at least pause very soon, so the correlation might return to its normal state in a week or two.

The RSI levels are not much above 30, so further short-term strength is suggested here. If the breakdown is invalidated, the picture then would become clearly bullish.

Summing up, the situation in the Euro Index improved this week while it deteriorated in the USD Index. Since the cyclical turning point in the latter is quite close and a small rally was seen this week, the implications are bearish. If the precious metals sector begins to respond, then much more strength will likely be seen in gold, silver and mining stock prices.

We expect to see a return of the negative correlation between the USD Index and the precious metals very soon.

Use the following link to sign up for a free, no-obligation trial of our Premium Service and read the complete version of this study that is over 10 times bigger. You’ll also receive Market Alerts on a daily basis and when the trial expires, you’ll start receiving our free newsletter. Additionally, you will also receive 12 gold best practice emails.

Thank you for reading. Have a great and profitable week!

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Gold & Silver Investment & Trading Website - SunshineProfits.com

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History