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Gold (USD/oz)
The metal continues to make gains in its long bull run, despite momentum having given some recent signs for concern. Last week saw it make a new high at $952.80 and in doing so it broke the down trend and negative divergence on the aforementioned indicator and tested resistance from the channel return line. Note that not all channels have to be formed of parallel lines. We appear to have a rising wedge pattern here where the lines are gently converging. Looking back it is clear that the consolidation seen late in 2007 was in fact a bull pennant formation, something that usually flies at ‘half mast’ in a move. The rise from $648.30 in mid-August to the start of the pennant at $837.90 represented a 29.25% jump. If we see a similar up move from the pennant breakout point at $806.14 in mid-December, then a target of $1042 is given. For now though resistance from the channel return line points to near term gains likely being hard won and the risk is of a correction toward a test of support from the channel base line and coincident 50-day average currently at $882.25 via minor support at $925.06.
GBP/USD
Exchange Rate
The pound has taken a significant amount of punishment across the foreign exchanges of late as the markets fall out of love with the mirage that was Blair’s, now Brown’s Britain, and Darling has yet to prove he can be one in the eyes of FX traders. Perhaps the least bearish chart for natural Sterling holders is the that of Cable. Even here we see a decline of over 8.6% since the heady days last November when the rate hit $2.1160. From a chart perspective the picture is clear, the break of the bull channel that dominated the rise from mid-2006 and which coincided with a break of the 200-day average too, naturally led to an expectation of a move to test the channel extension parallel, currently at $1.9250. So far this has not quite been achieved and with bullish rising momentum combining with clear support near to $1.9400, a test of resistance from the 50-day average is ensuing. It is early days, however, a saucer base may now be forming, a sign of a longer term up move, though whether this reflects Sterling strength or more probably dollar weakness is a moot point given the position of other Sterling forex charts. Provided $1.9400 holds, the rate does seem likely to recover toward a test of the $1.9980 high seen at the end of January. A move above this level would definitely be bullish for Sterling.