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Posted February 27th, 2006
The early February Dollar optimism has slowed down even further during the past week. While the Dollar Index has been holding up better than I have expected, I believe there is no reason for concern here: it still remains likely that on a short-term basis the dollar is engaged in a wave b retreat of some sort. The rangy character of that formation to date tells us it should be a flat pattern and due right next is its internal wave .c collapse that should achieve a test of 89.81-89.43 sometimes this week. During this past week the Dollar had a few sell-off attempts vs EUR and CHF that were well curbed; it was rather well bid versus these currencies. It was not that well bid versus the sterling and it was heavily offered vs the YEN. This divergent behavior is, in my opinion, yet another indication that the Dollar retreat is a countertrend affair with new highs in the larger wave B uptrend due in mid to late march. A break below 90.42-52 would signal that this market was headed for the ultimate wave b of B target around 89.40-80 but until that happens 91.02, 91.24-38 should act as back-up near-term resistance. Bottomline: The short-term outlook is sideways, with some type of downside bias but I would treat short-term tests of fibonacci support below 90 as a buying opportunity.
In the daily time frame things are very much unchanged. Our first choice remains that beyond this temporary consolidation - which by the way may last another1-3 weeks and trace more convoluted forms than currently suggested- the larger trend remains up in wave B. From a wave B high that should start forming anytime in the 2nd part of March at 92.65-93.78-94.49, we expect a sharp wave C collapse towards 84.36-85.58 going into the summer-autumn. As we said since the beginning of the year our outlook at intermediate degree is sideways in wave (B) but we maintain our forecast that as soon as we enter Q2 2006 there will be a distinctive and persistent downside bias.
The big running triangle alternate - the one that implies upside resolution from the last 4-6 months trading range is still a contender but nothing in our work suggests this option should be given priority over the bearish option. This count implies a push above 93.78-94.49 WITHOUT a break of 87.80 to make the case for an emerging intermediate wave (C)thrust really credible. Our first interpretation is that daily chart resistance will continue to hold while support will ultimately give way. For now we continue to believe that the Dollar is engaged only in a temporary test of highs and that a significant plunge will start off sometimes in late March-early April.
In the Gold market the situation remains as discussed last week. I do like the case that prices are finishing off a small degree bounce and will soon begin a sharp near-term decline towards 534.70-521.40-503.90. My key resistance remains 562.70-563.70 and then 566.30-569.40-570.90 ahead of 577.80 and I believe that there is a good chance for the former levels themselves to contain any short-term strength. Once the final wave .b high is in place I will interpret a break below 549.60-553.10 as a piece of evidence that is heavily supportive for my overall bearish short-term outlook. At the larger degrees, the coming test of 505-520-535 $/ounce counts best as the tail-end of the initial leg-down of a larger multi-month consolidation. Once this time consuming wave 4 is traced out Gold will be entitled to rally into its final wave 5 high above 600 $/ounce (I expect that to happen sometimes in Q2, perhaps going into the summer which is about the time when I expect the strong declining leg to take place in the Dollar Index)
A market that I have been following recently is XAUCHF, or the price of Gold in terms of Swiss Franc. This ratio is important to me for many reasons, most notably because I interpret the ups and downs in this market as the aggregate level of confidence in Gold (the ultimate currency) vs fiat money in its safest form (there is no safer thing than CHF that I could figure out to date). My take on this market is that it, too, is headed down in wave a of 4 together with Gold bullion, an outcome that makes perfect sense given the sideways overall outlook for the Dollar Index and the bearish interpretation for the Gold. Simply put, the fiat money looks like flexing its muscles against the yellow metal on a short-term basis, though the trend of intermediate and long-term deterioration is still there (thanks to the central bank masterminds of the currently unfolding era of �prosperity� which sees a purchasing power of the Dollar no less than 93% lower from the point in time the Federal Reserve System has been created). Beyond this multi-month consolidation above 2148.50-2246.40, the larger trend in XAUCHF remains UP STRONG in wave (3)