Last Friday we had the Non-Farm Payrolls release which was anticipated to see 80,000 net jobs added.
Instead we saw a loss of 33,000. However, I don’t think we can read too much into that data because it was clearly thrown off by a hurricane Irma and Hurricane Harvey in Texas. That’s why I think it’s just an aberration.
In fact, there’s still a 75% or 78% expectation that the FED will hike rates in December. Based on that we’ve seen the US dollar firming up, especially since that key reversal a couple weeks ago.
Plus there’s the fact that if we look over the last couple years, the dollar’s been trapped primarily within the long term support and resistance lines I’ve drawn here. When you combine that with existing momentum, we may see higher price action within the support and resistance zone.
But while I see a small rally in the US dollar I don’t think it will translate into something big. That would leave us in the trading zone for quite some time with almost all the US dollar related pairs.
I don’t expect continuing strength in the US dollar against anything other than the New Zealand dollar and perhaps the Swiss franc right now.
NZD Looks Bearish on all Fronts
Over the last several weeks and months, I’ve forecast the New Zealand dollar to be one of the weakest currencies against the other majors. We see this in NZDUSD right now with a long-term downtrend:
Although we did have a bit of a turnaround recently, we hit the top of the support area quite recently and now we have a double top.
Not only that, but last week we crossed through the neckline of that double top. I now believe prices NZDUSD is going to drop to at least the 68 price zone which is about 300 pips from current levels.
The New Zealand dollar should be weak against more than just the US dollar, though.
In this chart we’re looking at EURNZD and while I expect the Euro to remain in a trading zone and perhaps drop a little bit lower, I expect the New Zealand dollar will drop even lower to push up the EURNZD price.
You can see how EURNZD has taken off from the inverted head and shoulders formation we see on the weekly chart. It crossed the neckline several weeks ago, before stalling a bit at a new resistance area.
Now it may take several more tries before EURNZD kicks through the current ceiling, but it really looks like this pair is on a trajectory for much higher prices over time.
NZDCAD is another interesting one. Here we have an Adam and Eve double top.
An Adam top is a single spike and an Eve top is multiple attempts at that top area. This double top price formation indicates a reversal to the downside.
We crossed the neckline a few weeks back and now it looks like NZDCAD has been trying to retest that neckline in the short term.
Will it succeed?
Well, in the past couple of weeks we’ve seen two inside week bars. For two weeks in a row, the trading range has fallen within the range of the price bar three weeks ago. This is what I like to call a coiling effect. NZDCAD is building energy and based on the double top I expect we’ll see that energy released to the downside soon enough.
In fact, I’m already short NZDCAD for that very reason.
A Temporary Setback in GBPUSD
Based on some internal political turmoil within the United Kingdom last week, we saw a tremendous sell-off in British pound correlated trades.
Of particular note is the long-term price downtrend in GBPUSD which was broken just a couple weeks ago. Last week’s dismal price action has resulted in a drop back below that line.
So it’s going to be very interesting to see the response in the next could of weeks. I suspect we’re going to find some support at or near current levels, because there’s a more recent uptrend line lurking near current price levels.
In fact, we’re 100 pips or so from some major support in GBPUSD and I suspect we’ll probably grab a foothold at about the 128 price level there.
Here’s another view: I can also make the case that we’re presently forming an inverted head and shoulders in GBPUSD.
We may have a shoulder forming at the current level.
So GBPUSD might go a little bit lower in the near term, but I expect we’ll see a support zone coming and then a continuation of the new uptrend. I will keep you posted on my thoughts going forward.
A Sneaky GBPNZD Buy To Consider
One of my most watched pairs over the past several months has been GBPNZD.
I’ve taken several thousand pips on the upside of this pair based on what appears to be a long term double bottom pattern. The double bottom is best described as a W bottom and we took off above the neckline around 180 not so long ago.
In recent weeks, we’ve had three inside bars within the range of the trading range four weeks ago. So we have a coiling effect building up just like with NZDCAD.
However, last week I suggested that we take profits and we banked 500 pips based on GPBNZD trade setups from a few weeks ago. I recommended you close out that position just to lock in the gains.
Because even though I’m confident we’ll ultimately break to the upside (based on the double bottom price pattern) we may have to withstand further price action on the downside if the price wants to touch that neckline one more time.
If we make a new low and return to a high that would represent an opportunity, so it probably wouldn’t hurt to have a resting order above last week’s high just in case we get some kind of unique turnaround action.
If that buy stop isn’t triggered, no harm no foul.
But sometimes you can stick an order in a likely spot and capture what could be a surprise move. So even though I’m recommending we stay on the sidelines right now with GBPNZD, a sneaky buy stop above last week’s high could be very profitable.
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USDJPY Trapped in the Mire
I’m a bit ambiguous about the future immediate path for USDJPY right now.
There’s a double bottom in place, but also a resistance area at 114 and we’re currently fighting it out between these two zones.
We did have a mini reversal last week.
But I don’t think this will translate to an immediate move lower and my suspicion is that we’ll go sideways for awhile before ultimately retesting the 114 level.
That’s why I’m on the sidelines with USDJPY for now.
When you’re uncertain about something, the best thing to do is stay out and let it resolve itself. That also goes for any positions you might have open right now.
If you put on a position with an initial analysis and now you have some ambiguity, it’s probably best to close out that position because when we’re fighting ourselves then we’re not going to make good trading decisions.
I could make cases for either the bullish or bearish side in the yen pairs at this time.
So I’ll sit out and wait until I can get in at a better risk reward later.
Previously I felt we were headed higher with a weaker JPY but we’ve hit some major crossroads in CHFJPY and CADJPY. I’m waiting to see if that’s short term or if these pairs are going to roll over and die instead.
I still feel we have higher levels to come in the yen pairs but it just may take a little bit more time. Let’s wait for now.
Don’t Quit USDCHF Yet
Despite some late selling based on the NFP (Non Farm Payroll) figures on Friday, I’m still holding my long positions in USDCHF.
That’s because we formed a double bottom at the 94 level. Then in last week’s price action we saw prices jump above the neckline and close right at or near that very important line.
So despite some disappointing price action on Friday, I continue to hold my long positions.
We’re at an inflection point — any price action that punctures the downtrend line next week will see some follow-through to the upside in USDCHF. This is a difficult pair to handicap because it tends to stay in a price zone, but I’m tentatively holding on based on the underlying double bottom price pattern and the penetration above a recent neckline.
XAUUSD: Likely Bounce Coming
Now let’s take a look at XAUUSD (spot gold) because I’ve been observing a very interesting price pattern so we can capitalize on it in a big way.
We see XAUUSD has been trapped in an ascending broadening formation for quite some time and I’ve been having a field day trading the waves on the upside and the downside.
Since February I’ve bagged over 3,000 pips in XAUUSD this way.
Now admittedly I was really beating myself up last week because I got very short XAUUSD at the 1319 and 1318 areas and then watched it drop all the way down to about 1290.
Then I got hooked out of that trade.
We bagged several hundred pips on those trades but I watched the market go down another $30 from there.
How did that happen? While I saw spot gold going lower, I also felt that there were some key reversals that could translate into support. Those feelings turned out to be premature.
Now they were borne out on Friday when the most recent key reversal coincided with the support line of the ascending, broadening formation price pattern.
But I was a bit early. When the market took off to the downside again, after we exited, I was really beating myself up both with regard to money that I left on the table as well as those in my special Gold program and my Elite Pattern Trading list.
However caution is never a bad thing when trading. When you see key reversals in a prior support zone, they often do contain the price action.
They’re just not always as soon as you think!
So let’s see what just happened: Friday’s key reversal made a new low at 1260 and closed on the high. The buyers won the day.
But it wasn’t only that key reversal but where that key reversal occurred. Again, it was right on the support line that’s contained the action for quite some time.
And that’s why I’m a bit ambivalent about where XAUUSD goes from here. We had a huge monthly reversal in the month of September which should send spot gold down on a long-term basis. But based on this support, I could see another rally perhaps back to 1320 before another down leg kicks in.
But markets don’t go up right away. XAUUSD might slide sideways for a bit which is why I’ve suggested an entry order slightly lower than the current price. Let’s try and catch spot gold on a price retracement.
Remember that lot of these markets are in ambiguous areas right now including the yen pairs and the dollar. Although I could make the case for those instruments rallying a bit but I don’t see that much potential.
So we may be trapped in trading ranges over the next couple weeks. The market is trying to digest the NAFTA talks going on in the background, and we’ll see whether President Trump will decertify the Iran nuclear deal and what stance the FOMC takes on interest rates.
However, I’m always on the lookout for some opportune risk/reward opportunities we can jump on as they always present themselves.
If you’d like to prepare yourself for any of the NZD related trades I’ve highlighted today, seriously consider looking into my LIVE 2-Day Bootcamp that’s coming up soon.
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The Pattern Trader