Today I’m going to touch on three general themes I see a dominating the market in the immediate future.
The first theme: I’m seeing support coming back into the US dollar despite the multi-week selloff.
Second theme: the British pound crashed last week, which some observers are attributing to continuing Brexit concerns and fears.
Third theme: I’ll look at the yen pairs to get a better idea of what’s going on with the Japanese yen. (There’s something about to break there.)
Let’s start with the US dollar as represented by the USDI (the US Dollar Index), which measures the dollar against half a dozen of the world’s most liquid competing currencies:
Up until the last couple weeks, USDI has dropped as expected following a bearish head and shoulders price pattern. The head of that pattern coincided with earlier historical resistance.
Now it looks like USDI wants to rise up and retest the breakout area: the neckline of that head and shoulders. USDI is seeing support with some bullish key reversals where the market made a new low and closed on the high.
Perhaps the index will even rise above that neckline above before resuming the recent downtrend. Certainly there’s evidence accumulating that the dollar might have one more bullish run left.
What I’m seeing in the Euro, the British pound and maybe even the yen suggests one last USDI hurrah.
Here’s EURUSD (the Euro versus the US dollar) which shows the Euro’s tremendous run from 1.06 to 1.20.
However, that rally is starting to look tired. It’s likely we’ll see a retracement soon.
That’s because EURUSD is at a formidable resistance area around 1.20 right now. And over the last couple of weeks, EURUSD has traced out bearish key reversals where the price made a new high before it closed on the law.
I’m not expecting a huge decline, just a retracement. That’s because EURUSD appears to have made a bullish inverted head and shoulders, which indicates prices will go higher (but not just yet). As with USDI, it’s likely EURUSD could pull back to the neckline.
So I wouldn’t be surprised to see some kind of return to 1.15 to re-test that breakout area.
GBPUSD (the British pound versus the US dollar) got pounded last week on renewed concerns of Brexit and whatnot:
Previously I discussed the fact that GBPUSD had hit major price resistance at 1.35, a level which has held for quite some time. Then GBPUSD made a bearish key reversal that suggested prices were on their way down in accordance with the long-term downtrend.
We saw the results last week with a significant plunge.
How much further does GBPUSD drop? Will it make all-time new lows?
I can’t say yet. But I’m inclined to sell GBPUSD into strength. Sell any rallies here as I expect GBPUSD to be under continuing pressure over the next couple weeks at least.
Now I want to talk about USDJPY (the US dollar versus the Japanese yen.
Long-time readers will know I’ve spent weeks, months and even years saying USDJPY has been in a declining trend. It’s why I’ve been a huge short seller of this pair on rallies and it’s why I’ve made a monster amount of money doing so. I’ve been bearish because of the very well-defined double top at 126 which heralded a steady decline to as low as 102 within the confines of a descending triangle.
Until recently, I thought this would continue.
But on a monthly basis, USDJPY has been entering a coil where the range has been tightening significantly. When most traders see such very small ranges, they don’t look like anything.
I think that’s a mistake.
That’s because coils represent pressure building up until the accumulated energy is released explosively.
Once we see which way this pair wants to go, I’m going to be all over it like white on rice.
Patterns help guide us toward an answer for this potential major opportunity.
As shown above, a descending triangle can represent a continuation of a previous trend (in this case, down) or potentially a reversal instead.
But you can also draw an even more neutral symmetrical triangle around USDJPY’s price action too:
The nice thing is that USDJPY is getting closer and closer to the mature end of this triangle.
I’ve also been looking at monthly USDJPY through the perspective of a diamond price pattern. We’re even closer to the mature end of the diamond than either triangle:
So USDJPY is getting very close to a major move either back to 112 – 115 or down to 95.
And increasingly, I’m starting to believe that the move will be higher. I’ve been bearish on USDJPY for a very long time, but if the market can’t confirm the historical bear price patterns then what doesn’t go down must go up.
The market is going to be the ultimate referee here and will tell me which way USDJPY wants to jump. But I’m feeling more and more there will be a “surprise” move up.
Let’s drill down a bit to see why I feel that way. Here’s the USDJPY weekly chart:
There’s numerous dominant bearish price patterns here, including not one but two double tops as part of head and shoulders patterns plus the descending triangle. Taken together, these strongly suggest USDJPY should move to the downside.
But the market has been struggling for the last six weeks as it forms that coil. USDJPY can’t go down anymore. It’s been trying to drop, but there’s no appetite on the downside.
This gives special significance to the multiple bullish key reversals that have appeared in this market in the past, including one just before the formation of today’s unresolved coil.
That’s why I’m now alert to the fact that the next movement is increasingly likely to be “up”. And there’s a great way to play this: put a buy stop above the coil let the market action work in your favor.
If I’m right, you’re in at the beginning of what could be a very explosive move. And if USDJPY goes the other way instead, then your order isn’t triggered and it’s no harm, no foul.
This week has been especially blessed with some potentially very lucrative trading opportunities. I’ll show you exactly what they are — they include my best recommendations in the FX, precious metals, and stock markets.
Here’s what you’ll find in my latest video analysis:
- Where the US dollar’s going next (and which other assets this should affect the most)
- Which two USD (but non-yen) currency pairs I’m betting on with the best risk/reward ratio (starts at 2:55)
- Which pattern on my favorite yen pair has finally convinced me to get off the fence and place what could be a huge trade
- Why I’d rather short gold than silver right now, including my downside target for the yellow metal (watch 14:28 and learn)
- The movement you need to wait for it you want to short the NASDAQ or the DOW today
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