About six sessions ago, when spot gold was climbing towards its May-July resistance line ($1551), and EUR/USD was pressing lower towards its May-July support line (1.4170/80), I made a judgement call: I decided to buy the euro into its support line, looking for the end of its 9 week bullish consolidation pattern, ahead of a powerful thrust that projected to new highs above 1.5000.

At the same time, I decided to forgo entering the long side of gold --the SPDR Gold Shares (GLD) -- into strength, which usually is a mistake, and instead looked for gold prices to pull back before entry.

Well, that turned out to be exactly the wrong decision, didn't it? EUR/USD plunged 4 BIG figures, and sliced beneath all key support points between 1.4170 down through 1.3970 -- into and below its rising 200 DMA at 1.3910. Meanwhile, spot gold prices never did pull back at all and just continued to climb from $1545 above its resistance line at $1551 towards its May (all-time) high at $1577.60, which was hurdled today!

In other words, gold turned out to be a "no- brainer, no stress" position, while long EUR/USD turned out to be a nerve-racking, highly stessful, and unprofitable long position. What now?

From my technical perspective, the psychology underlying long euro vs. long gold has changed significantly in the last couple of sessions. Right now, EUR/USD remains a very discredited, almost hated, currency, especially after it wiped out lots of longs in the recent plunge. No one wants euros ... and everyone wants gold, which is an "upside-down" psychology that warns me that long gold has become the an exceedingly dangerous and crowded space, which will require a significant bullish catalyst to continue higher.

The euro, on the otherhand, looks to me like it ended a correction yesterday morning at 1.3835, where it managed to recover to, and accelerate from, its rising 200 DMA. If my work proves accurate, albeit a week too early, EUR/USD has started a new upleg- as difficult as that is to believe given the issues facing the PIIGS.

 

Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com.