The British pound against the New Zealand dollar (GBPNZD) was the star performer this week, but there are some interesting candidates shaping up for future trades this week.
That’s largely down to the U. S. dollar at the moment.
The dollar itself presented a mixed bag with GBP strengthening, AUD and NZD weakening (Australian and New Zealand dollars, respectively), and JPY (Japanese Yen) holding steady versus the greenback.
This is a result of the U.S. dollar itself (as represented by the U.S. Dollar Index) going pretty much nowhere. It went up a little, down a little and closed pretty much where it started.
However, the calendar is looking very interesting ahead with numerous central bank announcements plus of course the escalating US-China trade wars. Last week Donald Trump threatened new tariffs on top of the pending $200 billion tariffs scheduled to go in effect this month.
Many of those might very well kick the dollar and its competitors around significantly.
However, I want to stress that here at the Pattern Trader, we don’t try to predict how the near-term news will affect the markets. We look for patterns that have formed already for hints on market direction. This lets us make educated bets on the next big move.
And when there isn’t a decisive pattern, we wait on the sidelines until one appears. That means we don’t predict news, we look at how the market has responded to past news and evaluate the price action.
So that’s why I’m sitting tight on pretty much all USD trades right now. There will be some truly great opportunities coming soon, but they’re not here just yet.
Now let me show you the power of these patterns once they DO reveal themselves …
Last week, with respect to the currency pair GBPNZD (the pound against the Kiwi dollar), I wrote that if you were NOT long this pair, you were wrong.
See what happened:
By the end of the week GBPNZD closed well above 1.9700 and at a new high we haven’t seen in several months. Even better, the strong weekly close in GBPNZD suggests much higher prices to come in the next several weeks and months.
We’re right on the verge of setting a new high for the last couple of years, in fact.
I wouldn’t rule out a short term retracement back to the ascending trendline, but GBPNZD is going higher to at least 2.00 in the short term …
…and then much higher after that.
What defined the bullish case for this pair was the double bottom and rounding bottom, followed by a decisive breakout above the neckline formed by these patterns.
Then the current ascending triangle we have now has been punctuated by numerous bullish key reversals. A bullish key reversal makes a new low and then closes on the high.
An important point here is that each key reversal points in the direction the market wants to go. So all these little bullish signs just kept on adding up.
Now we’re in another serious bull market in GBPNZD again, and I expect to see much higher prices over the course of this year.
In the meantime, I’m still waiting to pull the trigger on a USDJPY (dollar against the yen) short.
This serves as a good example of how I wait for things to set up once I see a pattern.
My earlier sell stop entries weren’t triggered as instead of bearish price action, we’ve seen neutral price action instead.
The price has again managed to close on the trendline of that bearish descending triangle. From where it is now, it might rally as high as 114 which marks previous resistance.
The market couldn’t break that level during its previous excursion above the triangle and so I expect 114 will probably be the high for any rally that materializes this time. (A close above 114 would give me reason to reconsider my bearish bias on this pair).
So for now, I’ll sit back and wait on USDJPY. It pays to be patient as the market is always right. Let the market show you where it’s going to go.
Right now it’s still telling me “down” is the ultimate direction, but let’s wait for the decisive moment before we try jumping in with a short.
The same goes for the stock market too.
Last week, the NASDAQ 100 stock index sold off dramatically, while the S&P and Dow-Jones indexes held steady — more or less — at their weekly highs.
Let’s look at the NASDAQ first:
Although the tech sector increasingly appears vulnerable to a further sell-off, I’m not quite ready to write the obituary on this bull market yet. That strong reversal bar indicates we may have seen the near term top for now.
But there are a couple of trendlines that would need to be breached to call an end to the bull. We might see a trading range for tech stocks as the US-China trade war standoff carries on.
The market WILL eventually tip its hand and tell us where it’s going to go, but for now stay out despite last week’s bearish plunge. We need a better signal to tell us where the next big move is going to go.
Meanwhile the S&P500 looked much stronger in comparison.
The S&P retraced to its nearest resistance line in a relatively small drop. It too may slide sideways for awhile as the trade war plays out. It also has a bullish trendline that must be broken before we can feel truly bearish.
So there’s no decisive signal here either.
The situation gets even tighter with the Dow Jones Industrials (the Dow 30).
Last week the DJIA traded in a very narrow range.
In fact, it formed an inside bar. That’s when the high and low of the current bar is completely contained within the previous bar.
This not only indicates indecision in the market, it also represents what I call a coiling of energy. Think of a spring being compressed. The pressure builds and then suddenly explodes one way or another.
That’s what we’re seeing in the DJIA right now, and I wouldn’t want to bet on the direction of the explosion either way. Let the market show us where it’s going to go, and then we can make a big trade here.
Things look a lot more decided in the crypto market, if you were wondering.
Bitcoin (BTC) came back down to earth after a brief rally to $7,400. This instrument is now trading in the low $6,000’s again.
Any breach below $6,000 is likely to be followed by much lower prices.
If you’re long here, you’re probably wrong. I feel the next move is likely to be lower due to the descending trendline marked by successively weaker rallies we’ve seen. It has all the hallmarks of a burst bubble and it could be a long time — if ever — before BTC is setting new highs once again.
And that concludes this week’s analysis.
Going long GBPNZD is an excellent bet while we wait for the dollar and the stock market to show us where they’re going next.
And yes, there will be more big trades coming soon. GBPNZD is just the beginning. But be patient too. Sometimes the best trade is not to make a trade at all until we see exactly the right setup.
Plus 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. Once you learn them, you can trade anything profitably.
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