Currency market movements are getting slower as we head deeper into summer.
I’ve been warning you about this over the last several weeks as it’s pretty much an annual occurrence. During the summer period (July through September) I remain skeptical that FX trends will follow through as robustly as in other periods.
However, it’s still possible to profit as long as we’re careful and patient. That’s because there are some interesting long term trades worth investigating right now.
I’ll discuss those in just a moment.
But first I’ll let’s take a look at the weekly chart of the U.S. Dollar Index as it’s so often key to what else is going on in the markets.
Despite a favorable Non-Farm Payrolls (NFP) report, upward momentum in USD remained stalled at a key resistance level.
In a normal trading environment, I’d consider looking for a short here. However, the forex summer doldrums suggest we’ll merely see lots of sideways movement in most USD-related pairs.
So I expect USD-correlated pairs to remain somewhat range-bound for the next several weeks (or even months).
Basically, we don’t want to push on a string for now.
While this might seem “boring”, I’m willing to give up a couple good opportunities at this time until there’s a clearer sign that USD-related markets look better for large moves.
You see, by keeping our powder dry, we keep both our equity (and mind) intact. So when the trading environment looks promising again, we can step on the gas and take full advantage of the better trades on offer.
In the past, my bent toward “perfectionism”, coupled with the fear of missing out (FOMO), led me to press forward even though I expected less optimal trading conditions in the summer period.
But I’ve gotten to the point where I don’t want to incur the inevitable frustration of trading sideways markets. Again, even if it means I have to miss out on those set-ups that result in good moves, it’s worth the wait for BETTER movies in the autumn period.
So for now I’ll keep my risk low by avoiding most trades over the summer and through to September.
Not ALL trades though.
There are 3 of them that are still worth a serious look right now.
Let’s start with the dollar against the Japanese yen (USDJPY).
If the dollar as truly peaked for now, shorting USDJPY is a worthwhile trade.
There’s a lot of evidence for taking the short side here.
You can see the historical double top within the head and shoulders pattern awhile back. That led to a steep decline in USDJPY before the price bounced back to the neckline of that pattern.
Since then, it’s been on the slide again. And it could be at a major juncture right now.
In fact, USDJPY is tracing out a bearish descending triangle and it’s stopped right at the resistance line of that pattern.
I expect it to turn lower, and soon.
So look to short under last week’s low with a buy stop order. That gives us a good risk reward for USDJPY to drop to the triangle’s neckline and ultimately much lower than that. Perhaps even to JPY parity at the 100 price level.
Now for a long-time favorite of mine I’ve been bullish on for the last year …
The British pound against the New Zealand dollar (GBPNZD) made us a lot of pips on the long side in 2017 and I expect it will continue that trend this year too.
As I’ve trumpeted repeatedly, this particular pair is in a slow and steady uptrend.
I first got bullish on GBPNZD when I spotted the double bottom that occurred back in 2016-2017. Since then the price broke the neckline of that bottom, retreated and made a rounding bottom, and kept marching north.
Most recently, the price has traced out a bullish ascending triangle.
It might slide sideways for awhile longer before a major breakout, but that breakout is looking increasingly likely in the next 6 or 8 weeks or thereabouts.
I and my Pattern Trader members have already taken a position here on which we made several hundred pips from the bottom of that triangle.
But last week’s key reversal indicates we might see at least one more dip before the next extended bull run. At best, I suspect we’ll see a bit more sideways action in the near future.
So I’ve suggested taking off 30-50% of your position if you want to be conservative.
However, I’m still very bullish on GBPNZD and recommend buying the dips and holding for the long term. I think we’ll see spectacular profits in this pair by the time this year is over.
Now onto another long-term obsession of mine: spot gold
XAUUSD has been stuck in a difficult trading range for awhile and has offered few genuine trading opportunities until very recently.
That’s because it’s been bouncing around between the lines of the ascending broadening formation as I’ve show you above. Normally this is a bullish pattern but XAUUSD has always hit hard resistance at the 1360-1380 level.
And ultimately, that’s bearish. If it can’t go one direction, it will eventually go the other.
That’s why things looked very interesting when XAUUSD recently broke below support for the first time since that ascending broadening pattern formed. I think the long term trend is down … and hard.
But at the moment, spot gold has picked up a bit of support at the 1240 level.
Note that it’s held at this level once before, way back in late 2017.
So XAUUSD might rise a bit for now before dropping later this year after the summer doldrums are over.
Just like with GBPNZD, I and my Pattern Trader members had a trade on here. We’ve been short and made a few hundred pips already. And because spot gold looks set to rise before the eventual fall, I’ve suggested taking off 30-50% of you position to be conservative.
Short any rises here and wait for the meltdown later this year.
Now let’s take a look at the major U.S. stock indexes: the NASDAQ100, the S&P500 and the Dow Jones Industrial Average (DJIA).
I want to draw your attention to the contrasts between the NASDAQ and the other two.
First, NASDAQ100 itself which is at or near all time highs right now:
This chart looks very bullish and had a very strong week last week to close on its high.
However, we’re not seeing quite the same bullishness in the other two indices.
The S&P500 is well off its highs from a couple months ago.
And while it too had a strong week last week, the fact remains that it’s been bouncing
around in a trading range between 2700 and 2800 for the last several weeks.
Despite last week, I’m not convinced we’ll make new highs in the near term here.
In fact, I’m concerned that the bearish divergence between the NASDAQ and the S&P500 could herald a major decline in all the key indices.
Especially when the Dow looks a whole lot like the S&P500:
Here we can see there’s no new highs here either, even with last week’s bounce.
In fact, the price just made it back to the trendline of the descending triangle I’ve drawn for you here.
We previously had a breakout for this triangle which seems to be a false one. And that mini-breakout now looks like a bear trip.
So watch the action of the next few weeks carefully. If the Dow continues to stay within the triangle that could herald a major drop later this year. I probably don’t need to remind you that the biggest U.S. stock market crashes in history have always been in the autumn period!
Anyway, for now just be aware that there’s a potential bear trap in the NASDAQ as that one index is near all time highs and yet the others aren’t confirming this. Be safe.
That’s why I recommend keeping your risk low by being conservative and selective about opportunities right now.
I’m in a capital preservation mode right now. I’m offsetting my expectations and prepared to watch some trades go by until September.
Remember that professional traders are measured by the trades they don’t take as well as the trades they do take. I realize it’s not the most glamorous thing you want to hear when it comes to trading.
After all, not many traders want to sit on their hands and stay on the sidelines.
But experience has told me this is the best posture when the environment just isn’t right for big trades.
Other than short USDJPY and XAUUSD (and long GBPNZD) I don’t see anything else worth taking in the immediate future.
That doesn’t mean you can’t learn a lot and prepare for what’s coming later this year.
That’s because there’s an easy way to “get the jump” on learning to trade the Pattern Trader way in my LIVE 2-Day Bootcamp.
In the Bootcamp, I’ll demonstrate exactly how to make trades just like the ones I’ve outlined here, including my “Lazy Trader’s” 5-step execution plan. That’s the one I’ve used to pull in more than 9,000 pips in FX last year and thousands of dollars I’ve made from stock trades this year too
Remember, the exact same profitable patterns show up in FX as well as in the stock market.
(I’m going to be talking a lot more about stocks and the stock market over the next few weeks too.)