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EUR/USD Breakdown Likely To Spur Dollar Rally, GLD/GDX Correction

Following the recent whipsaw/false breakdown, the EUR/USD has made a solid breakdown confirmed by more than just a few candlesticks, as with the previous breakout. This breakout also occurred in the "sweet spot" where most wedge breakdowns typically occur (about 65-80% towards the apex of the wedge).

With the Euro representing a whopping 57.6% of the US Dollar index, should this scenario play out in the coming days, GLD & GDX are likely to move substantially lower as a gold generally moves inversely to the $USD. Also note that the US Dollar & US Equities have shown a strong direct correlation in recent years. Hence, should the $USD rally in the coming days, that would likely lift equity prices, further exacerbating an unwinding of the recent flight-to-safety bid that gold & GDX have benefited from. EUR/USD 60-minute chart:

EUR-USD 60-minute Feb 12th

EUR-USD 60-minute Feb 12th

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2 Comments

  1. Mrg5a February 12, 2016 8:49 am at 8:49 am

    Been watch the gold market all day (living in Europe). Looks like equity bounce, positive US data, strong USD and Gold fall. Thanks for the updates the following days. I am short GDX (a bit early) and decided to hold short against the near-term pain, but looks like the correction might play out.

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  2. rsotc February 12, 2016 9:01 am at 9:01 am

    @mrg5a Best of luck (to both of us) on that GDX short. The bid beneath gold & GDX has been voracious lately so anything can happen. I’ll be curious to see how GLD closes here in the US session today. Although gold trades around the clock, I know there is a very large interest in the GLD ETF, so much so that I believe it is often a case of the tail wagging the dog (GLD inflows & outflows determining the direction or gold & often sparking rallies on technical breakouts). Either way, if GLD happens to close down 2.3% or more today, that will have signaled a bull-trap/false breakout above the downtrend line on my GLD weekly chart. Still a lot of work to be done as GLD is only indicated to gap down -0.84% in pre-market trading right now so they’d really have to sell it down hard during the regular session today. However, some false breakouts on the weekly can take 2-3 weeks before falling back below the breakout level. Just something to keep an eye on for now as that could have longer-term (weeks to months) bearish implications for GLD & GDX.

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