RECORD TRADE DEFICIT WEAKENS DOLLAR AT MAJOR RESISTANCE BARRIER -- GOLD WEAKENS WHILE JAPANESE YEN IS JUMPING

GOLD PULLS BACK WHILE YEN JUMPS ... On Monday I revisited the positive relationship between gold and the Japanese market. I suggested that both still looked overbought to me, but would probably need to correct together. Gold started its downturn yesterday which has continued today. Chart 1 shows the Gold Trust Shares (GLD) falling the equivalent of $30 in the price of gold from Monday's intra-day high. The 9-day RSI line has fallen below overbought territory over 70 which suggests a short-term top. The GLD is nearing a test of its 20-day moving average near 50 ($500 in bullion). The indicator at the bottom of the chart shows that Bollinger band width is starting to contract which is also symptomatic of a short-term top. I also suggested on Monday that while gold was overbought, the Japanese yen was oversold. Right on cue, the yen is jumping 2% against the dollar today and is trading over its 50-day average for the first time in three months (Chart 2). Since the falling yen was causing a lot of Japanese gold buying, it stands to reason that a rising yen would provoke some gold profit-taking. The Nikkei fell 2% last evening and was the biggest loser among global markets. Japanese iShares (EWJ) are also down, but by much less (-.23%). That's because EWJ losses are being lessened by the rising yen. [The EWJ is quoted in dollars. That means that it's influenced by both the direction of the Nikkei 225 and the direction of the yen. Although the Nikkei is falling today, the yen is rallying. That lessens the loss in the EWJ].

Chart 1

Chart 2

RECORD TRADE DEFICIT AND FEDTALK WEAKEN DOLLAR... The October trade deficit (which was expected to decline) jumped to a new record as U.S. imports continued to exceed exports. That's having a predictably bearish impact on the dollar which had already started to fall. Chart 3 shows the U.S. Dollar Index falling beneath its July peak and its 50-day average earlier in the week. The dollar is also falling as a result of yesterday's Fed statement which hinted that its rate-hiking was nearing an end. The Fed hikes had been supporting the greenback. Chart 3 also shows that the daily MACD lines are now bearish. A downturn by the dollar from the 92 level is important because that represents a long-term resistance level. The weekly bars in Chart 4 show that the USD has reached the highs formed in the spring of 2004 just above 92. At the same time, the 9-week RSI line has shown a negative divergence near the overbought 70 level. The weekly MACD lines also appear to be rolling over. The USD appears headed toward its rising trendline (near 89) or its 200-day average (near 88). Some chart analysts are viewing the pattern on the weekly chart as a potential "head and shoulders" bottom. That may well be the case. Even if it is, however, the formation of a "right shoulder" could take the USD all the way down the 84-86 region. That's still negative for the dollar over the short to intermediate-term.

Chart 3

Chart 4