I’ve reproduced two charts below, one suggesting that the euro is about to rise, the other that the dollar will fall. My conclusions are based on the dramatic way in which stochastic indicators for each have diverged relative to price. In the top chart, notice how the September euro’s five-day decline failed to get very oversold before the futures reversed and shot higher. Granted, a single day does not a trend make. But the impression nonetheless is that buyers were so eager to get their hands on euro futures when they broke beneath June 14’s lows that they acted as though the weakness were opportunity, buying with little apparent concern that tomorrow might bring even lower prices.

(Click on images to enlarge)

The opposite picture, one of imminent weakness, emerges in the chart of the Dollar Index immediately below. It reveals that sellers were so eager to unload that they pummeled bids as the index was rising, presumably fearing the rally wouldn’t last.

If the analysis above is correct, we could expect a fairly strong rally in the dollar price of gold to begin at any time. A hidden pivot at 447.60 has served until now as our minimum upside objective, but a dramatic change in the dollar/euro relationship would suggest that significantly higher bullion prices are possible. If so, the most logical target for the next 5-7 weeks would be 477.60, the first major hidden pivot above 447.60. If and when the rally begins, it will signaled by a two-day close above 447.60, or a breach of that number intraday by at least 0.70 points.