— Wang Tao is a Reuters market analyst for commodities and energy technicals. The views expressed are his own — For more of his analyses, please click [TECH/C]
For a graphic showing the technical outlook, see: here
SINGAPORE, May 21 (Reuters) - The spot gold XAU= and euro EUR= correlation shows a symmetrical "W" shaped pattern.
For example, from 1988 to 1992, the correlation edged down into the negative zone, and an inverted ascending triangle developed; while from 1996 to 2000, a mirror-imaged ascending triangle formed, and both took around four years to complete.
From 2002 to 2006 an ascending triangle formed, while from 2006 to present, a mirror-image, inverted ascending triangle has developed.
Historical data from 1986 shows the correlation between spot gold and the euro tends to be positive most of the time, the current negative 0.570 coefficient is regarded as an extreme value.
By duplicating the past pattern, a possible future correlation pattern can be developed which indicates the current negative correlation could end soon.
The current value is close to a symmetrical low seen in April 2002 at negative 0.586, and it is expected to rebound soon and turn positive.
The implication is that spot gold and euro will again start to move in the same direction.
We may see spot gold continue to shoot up higher if the euro reverses its bearish trend, or, spot gold may reverse and follow the euro lower.
However on the upper weekly sub-chart, the euro wave pattern shows the current wave “C” could drive the euro price to $1.1435 or much lower; while the spot gold chart presents a possible peaking pattern, completing the wave “5”.
The conclusion is spot gold will reverse the bullish trend and join the euro in on its bearish path soon. (Reporting by Wang Tao; Editing by Nick Trevethan)