Let’s start by looking at the U.S. Dollar Index because the U.S. dollar is starting to pick up some steam on the downside. Especially against the British pound, which I’ll talk about in a moment.
As you guys know for the last several months I’ve been tracking the potential of the megaphone top, including the fact that the dollar was likely to go much lower over the next several weeks and months.
This is exactly what we’re seeing.
And last week we saw an inside week bar where the high and low of last week’s action finished inside the previous week.
That creates compression in the market. Usually when we see compressions, the market eventually builds up steam before violently unleashing it. This is especially important because we’re now on a collision course for the support line of the megaphone top.
And once we reach the support line indicated by the green arrow, we’re likely to open a move lower. Typically we can measure these moves by measuring the top of the triangle and its bottom. This opens up a projected move in the Dollar Index to the lower end indicated by the green arrow.
In short, I feel the dollar is vulnerable right now. Especially against the British pound.
The Power of Double Bottoms and a 1,000 Pip Gain
The likely biggest beneficiary of the US dollar downtrend is GBPUSD.
As you can see form this chart, last week’s price action created a breakout above a major downtrend line that had been in place for a very long time.
It did break above the downtrend line briefly with the Brexit event, but of course this didn’t last and GBPUSD closed well below the line.
For my subscribers, I made a special video report talking about the pound and some of the pound correlated pairs because I’ve been anticipating this price action for quite some time. I’ve been positioning myself well ahead of this breakout event ever since the double bottom in October 2016 and January 2017.
So even though the Bank of England announced a potential interest rate increase last week, the British pound had already been moving up in expectation of this. Again, this is a great example of how price patterns and price actions precede news or events well ahead of the actual event itself. In this case, the market was already indicating a bullish GBP nine months ahead of the news.
If you’re part of my Elite Pattern Trader list (my daily trades), you’re ahead well over 1,000 pips in the last two weeks on a combination of two long positions: GBPNZD and EURGBP too. These positions have delivered over 1,000 pips in just over a week.
While I believe the British pound will be one of the stronger pairs going forward, the Japanese yen will be one of the weaker currencies.
That’s because I’m seeing the beginning of breakouts on long term charts that project a large move in yen correlated pairs. This chart of CADJPY is the best example right now.
This pair is starting to set the table for a long term move to the upside by virtue of an inverted head and shoulders price pattern.
Recently we crossed the neckline and last week we closed firmly above it. This suggests a higher trajectory higher in the near future. Having said that, I do expect some consolidation in this area.
But any retrenchment back to the breakout area would be a good time to establish long positions. Other JPY pairs are showing similar potential for the new few weeks and months but right now CADJPY looks like the best option for a large move.
Unfrozen EURCHF Ready For A Move Up
Another pair firmly on my radar screen is EURCHF. This chart also appears to have broken out of a long term consolidation by virtue of an ascending triangle.
The EURCHF price action has been contained for many years within that ascending triangle. Then a couple of weeks ago we had a breakout and now we’re consolidating above it.
If we see any progress above recent highs I would expect such a move to open the path to much higher prices in EURCHF. This is one to watch closely.
Bearish M-Top in USDCAD: Get Short
Now let’s take a look at USDCAD. If the U.S. dollar is primed to move lower we can expect that USDCAD will also move lower.
The supporting evidence for this features a large double top. I realize that one peak is well below the other, but the price has formed a powerful M top price pattern on USDCAD.
And we did have an inside week bar last week which acts as a compression bar. These tend to precede major price action. The calm before the storm, as it happens, because we do have a a congestion zone between the 120 and 125 price levels.
So we may see a bit more consolidation in this area and even a snapback to the breakout area before a large move. In fact, any retrenchment back to 125 would represent a tremendous opportunity to get short dollar USDCAD.
That’s because ultimately my expectation is we’ll work much lower in this pair by virtue of the double top price pattern. I’ll be on the lookout for any price action, any opportunity where I can get short USDCAD on a high probability trade.
U.S. Light Crude Oil Keeps on Keeping On
Despite Hurricane Harvey, the worst storm in U.S. history to hit Texas (a major oil producing and oil refining state) and then Hurricane Irma last week in Florida the U.S. light crude oil market has barely budged.
Crude oil remains well contained in its rounding top price pattern in a market that’s characterized by low volatility right now.
Ultimately I expect we’ll see a move below the $39 neckline, although this market isn’t one I want to get involved with at this time.
Any kind of trajectory back to that neckline would pique my attention and I would want to start putting on some short positions. That’s because I anticipate seeing light crude oil back to the $30 dollar level and perhaps well below that in the future.
Brutal Reversal in Spot Gold
Spot gold broke out of its recent trading range between 1,200 and 1,300 level a couple weeks ago and then rose to challenged 1,360 and 1,380.
However, prices were rebuffed smartly last week and we gapped lower and closed on the low of the week.
This indicates fairly negative price action.
Earlier I was on the fence about XAUUSD because I didn’t know if we were on the verge of a breakout in a new bull market.
But by virtue of last week’s price action I believe we’re going to snap back at least to the 1,300 price level again and possibly well below that.
Notwithstanding the bullish potential, I was always concerned about the resistance at 1,390. And if it managed to get above there, there was another soldier at the door at 1,420. Plus the more recent history at 1,380.
So this was always going to be a difficult area to get through and it does seem by recent price action that this market is due to settle back a further even if it still has a chance of a bullish future later on.
Let’s see how much support there is for this idea on a daily chart for spot gold.
For the past several months spot gold has been adhering to an ascending, broadening formation which starts narrow and then widens as it continues.
At the top of this pattern there’s some very bearish price behavior with several key reversals including one at the very top where the market made a new high before closing on the low at the very apex of the move. Then it actually gapped lower and the gap wasn’t filled – both are very bearish signs.
I went short based on last week’s key reversal and now to those on my gold member list as well as others I’m advocating that we go short again and add to our position on Friday’s latest key reversal price action.
It appears that the market is now on a collision course for at least the 1,300 price level and potentially much lower. So again, based on the very negative price action in gold, this appears to be a false breakout above the 1,300 level and we’re going to retest 1,300 and potentially much lower going forward.
Two Out of Three Ain’t Bad: U.S. Stock Indexes Make New Highs
Last week President Trump opened up a new spirit of bipartisanship in Washington and the US stock markets seem to applaud as the S&P 500 quickly burst to a new weekly high.
The same thing happened with the Dow Jones Industrials …
… and the NASDAQ technical index tried to do the same, but couldn’t quite get there. It lagged behind within touching distance of its old weekly high.
So again this huge bull market in stocks seems unperturbed and its on its way to increasingly higher levels.
That about wraps up this week, and I’m really looking forward to what’s coming in the rest of this year.
If you’re a subscriber, I hope you took some of my trades in the pound correlated pairs over the last week or two. If you did, you should be ahead well over 1,000 pips collectively in two long GBPNZD positions and one short EURGBP position.
I’m still in those and I expect them to keep producing profits.