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Chapter 28, Part I. Intermarket Analysis - Commodities. Page 4

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 26, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Just for comparison, the Dollar Index has just -0.74% correlation with gold, while AUD/USD pair - 87.3%. Also significant is the correlation with the Canadian Dollar – around 82.9%.

    Pipruit: But how we can apply this?​

    Commander in Pips: This analysis is very useful from a fundamental point of you for long-term traders. For instance, you see, that the world's economic data starts to gradually improving, but you can’t find the moment when to enter a long-term trade. One of the possible ways is to track divergence between Gold and gold-linked currencies. If, for instance on a monthly chart, some currency creates a new top, but gold does not support it – then probably you can try to enter, at least partially. This calls as “intermarket divergence”. We’ve discussed it on the Dollar Index also. But remember – this should not be done blindly – this is a technical issue and it will give you just a moment to use as an entry point, but not a full context to enter. You must have a solid foundation to enter into a long term trade and this should not be just divergence, even on a monthly chart.

    For instance, currently we see solid divergence of the Dollar Index and Gold. From one point of view – it could be a signal, since the dollar does not become weaker, while Gold becomes stronger. But this could happen just because Gold becomes more expensive, even in terms of current dollar value. As you can see divergence itself can’t resolve this question. If, say we will see in nearest future regular positive and strong macro data on US economy – that will be the clue that probably this divergence could lead to a reversal.
    #1 Sive Morten, Dec 26, 2013
    Lasted edited by : Oct 8, 2016
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