Gold to lead
Wed, Aug 13 2008, 06:07 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
The potential for an aggressive dollar rally was discussed in last week's release. The speed and extent of the markets' move are not surprising considering the number of technical levels aligned in close proximity. The broadness of the dollar rally from core to emerging markets implied a major unwinding of short positions and was mirrored by the technical set-ups in precious metals.
The main question now is: do we fade this move or is there more to come? The answer to both could be yes. Firstly there should be more dollar strength to come in the core markets and with commoditity currencies still trending, the first clue to a turn around should come from there.
Secondly, the long term dollar trend does remain bearish and commodities are still in a major bull phase. Whilst these corrections are large and we have not found a low just yet, the overall trend remains to the upside. So at some point the dollar bearish strategy will be put back on the table. In the meantime euro sterling should be monitored closely. Once the inevitable sterling bounce does happen, a move through 0.7760 would complete a major technical reversal.
