In my earlier posts I showed you how gold and crude oil broke out of their trends. Gold moved higher amid an oil break down. The simplest trade here is the purchase of gold on the dip and the sale of oil on pullbacks. Today I want to share with you some other options. We can use oil related currencies instead of oil as they tend to lag and overreact to oil moves.
Chart 1. Gold Vs. Russian Ruble Weekly: Say Hi To A New High!
Chart courtesy of tradingview.com
The currency of the world largest country stopped strengthening only last Friday despite that oil reversed much earlier. I call this an overreaction of the currency to the oil move. I guess it’s all about the mechanical reaction of retail USDRUB sellers to the ruble and oil strength which was gone long before they started to act. Usually, non-professional players tend to sell bottoms and buy tops on market panic. Another good thing in this market is that while the ruble was strengthening gold pulled back down, giving potential buyers extra bonuses (falling gold + overreacting ruble).
The Gold/RUB pair has been in an uptrend for 2 years. At the start of 2016 the market it broke out of the triangle above the RUB 78K level and then rapidly moved higher. It topped beyond 2015 high at RUB 101,858 level in February.
The market is pulling back now, probably to its former resistance level (coincides with trend support) at RUB 74-75K level. Gold will continue to the upside once the price cracks the blue resistance line (RUB 85,300). The target area is located on the upside of the trend at RUB 119-120K, quite ambitious! This idea will be canceled if the price hits below the black uptrend at RUB 73K level.
Chart 2. Gold Vs. Canadian Dollar Weekly: Watch The Middle
Chart courtesy of tradingview.com
Gold has managed to break the long-lasting downtrend (highlighted by the red line) against the Canadian currency at the beginning of 2015, much earlier than it did versus the US dollar amid an oil drop. This metal cross gives us a wonderful opportunity to illustrate the breakouts and pullbacks on the chart.
The first red breakout topped last February at the C$1635 level and then dropped back to the red trendline (former resistance). It touched the pullback area last July with a sniper’s accuracy and then the price bounced up. This is the perfect example of how a simple breakout technique works.
Like last year this January, we had a new breakout of the blue resistance line. And again like last year, the price peaked in February making a new maximum at C$1762. Currently, we are in a corrective pullback down. The price now reached an important area of the channel’s middle at C$1580 and if the market closes below it in the coming weeks, then we should wait for a deeper retracement to the blue trend line just above the C$1500 area. If it holds the support, then we will see a good upside move to the C$1790-1810 level of the trend’s upside zone. This idea will fail if cross will dive deep below C$1500.
Russia is the largest country by area in the world and Canada is the largest country in the West. It's interesting to see how their oil-related currencies behave against gold. The ruble makes new all-time lows against the yellow metal while the loonie (nickname for CAD) broke out of a corrective uptrend. But nevertheless, they both are going to lose their value amid falling price of the crude oil.
Intelligent trades!
Aibek Burabayev
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
Dear Aibek,
As purely in friendly terms, I must draw your attention towards that fact that when we select Technical Views, we require to focus on searching Chart Signs, and accordingly, considering long term or primary point of view, Neither Gold nor Crude Oil have broke their Basic trend, and what ever higher levels we found are must be treated as Technical Bounce Backs, till any long term trend reversal signals.
As per my personal study, more shocking Bottoms for both Gold and Crude is till ahead.
Specifically, when we are passing through extremely critical movement across the various markets, it is quite difficult to take any view, based on any comparative studies, and can hardly find any reliable or firm conclusion.
Dear Rasesh,
I am glad to have your valuable and friendly feedback!
These ideas are based on medium term trends.
I meant breakout of current trend channels in both Gold (up) and Oil (down).
Major trend for oil is still down.
Major trend for gold is still down (as $1920 still safe) as I mentioned in my post we are in a huge correction still.
Best wishes, Aibek