Last week saw numerous weekly price reversals in several asset classes including the US dollar, silver, and the US stock market too. Some could have long-term implications, others could be just temporary.
Let’s start with the dollar.
Here’s the US Dollar Index (USDI) which measures the US dollar against a half dozen of the most liquid currency pairs:
USDI made a key reversal last week. Prices fell to a low, but by the end of the week, the index reversed to close at the high end of the bar. You can see USDI did the same thing earlier in the chart. Note how key reversals tend to hold up prices and even point to where prices are going next.
This suggests that USDI’s latest key reversal means there will be some interim support. That’s consistent with the longer-term support level for the last year. When prices met this level before, they bounced off and even rallied at times.
While I expect USDI to ultimately continue lower thanks to the double top pattern that’s forming now, in the meantime it may track higher or sideways for a while. While USDI sometimes does get jammed up in long-term congestion ranges, I don’t expect a sustainable rally in USDI at this time.
To unpack this a bit more, let’s review a number of dollar-correlated trading pairs and see what we can learn from the USD reversal.
If you read my last report, you’ll know I predicted the 0.70 price level was going to be a barrier for AUDUSD (the Australian dollar versus the US dollar):
That’s because AUDUSD had risen from 0.55 to 0.70 with the coronavirus as an apparent catalyst. It went very far, very fast all the way to previous highs at 0.70 that suggested AUDUSD would hit a stumbling block.
That’s exactly what we saw with a small key reversal that took AUDUSD back down to its downtrend line.
I think this correction isn’t over yet. AUDUSD is likely to drop back under that long-term resistance line and consolidate at lower levels. Yes, this pair has put in its ultimate low at the 0.55 level which means that over time, it’s going higher. But the key phrase is “over-time” and we could see some sideways action or even another dip first.
To have a sustainable uptrend in AUDUSD, the price action needs to put some distance between the long-term downtrend and the new uptrend. V-bottoms (and V-tops, for that matter) rarely work. The market typically needs more time to adapt to a change in trend.
That’s why we’ll likely see some backing and filling before there’s another breakout.
So I don’t feel this is a good place to start chasing this nascent AUDUSD rally. Let’s see where prices hold first.
Now here’s EURUSD, (the Euro versus the US dollar):
One of the things I look for in the charts is the follow-through. How does a market follow-through from a given chart pattern?
Until very recently, EURUSD was rightfully headed down after each of its head & shoulder patterns shown here.
But now, we’re starting to see what I call a busted pattern. Prices are jumping to higher levels than should be “allowed” by a head & shoulders.
EURUSD is digging in and has even broken out above its downtrend channel twice now. Sometimes we get false breakouts and the price drops back into the trend. I’m not ruling out that possibility. And typically two key reversals alert me to major opportunities, especially when they occur near 1.15 which is a key resistance level in EURUSD.
However, I don’t think we’re necessarily seeing a double top here and that we should short EURUSD.
That’s because this is an opportunity to see how well the price digs in and consolidates while being alert to any move to the upside. Remember these are weekly charts and therefore it could be several weeks before we see another upside breakout.
So there’s no urgency at this point. Just wait and watch market behavior. We can always pounce upon the best opportunities with the best risk/reward profiles as they arise.
Now here’s USDJPY (the US dollar versus Japanese yen):
For anyone who’s been following me for any length of time, you know exactly where I stand with regard to USDJPY rallies. I’m pretty much a long-term bear on this pair.
There are many reasons for this. For one thing, I can’t see anything that’s going to lead to a sustainable rally in USDJPY. And therefore every attempted rally should be shorted by virtue of the multiple long- and short-term governing chart patterns.
There’s every possibility that USDJPY can continue to go sideways, but ultimately this pair is going down thanks to the 2015 double top and head & shoulders combination. This is what set the stage for a long-term declining market – it’s still the bearish governing pattern.
That governing pattern was followed by a long-term descending triangle. And while there have been several rallies within this triangle, they’ve only reached lower highs. That includes the 400-pip rally over the last couple of weeks.
So if you’re not short already, attempt to get short on any future USDJPY rally using a limit order. A limit order is arbitrary because you’re trying to anticipate how much a market will rise before it falls once again. That can be a tricky thing, of course. One of the problems is that the price could almost hit your limit, but then fall before you get filled.
But however, you decide to do it, look at shorting USDJPY for the foreseeable future. Establish very small positions and build them over time.
That’s because I strongly feel that short USDJPY is your best risk/reward bet over the long term.
“One man’s trash is another man’s treasure” … or in this instance, bad news for one person is good news for another.
Based on what I’m seeing, the US Economy is in trouble.
But if there is ANYBODY that is best placed to turn this bad situation into a positive, it’s traders that are “on the pulse”
In this week’s ‘Weekly Video Report’ – I outlined the key opportunities in the markets, how to profit from the long-term declines, and take advantage of some rare opportunities that have appeared.
- With key reversals in the US Dollar, Silver, and the US Stock Markets … I share why there has been so many price reversals over the past seven days
- What the Reversal in the US index means, and which direction I believe this is going to go in based on this very specific pattern (here’s what you should do right now – watch from 1.19)
- What’s going to happen next on the AUSUSD and the ONE thing I’m waiting for before being certain of a breakout
- The rare “Eve and Adam” Double Bottom that suggests why EURUSD isn’t all that it seems (I share what is going to happen next).
- Why you should SHORT every rally on the USDJPY – I explain how you can continue to make short profits on this long-term declining market
- Why this “House of Cards” is eventually going to come falling down and the exact actions you should take in this market IF you have a strong stomach (watch from 13.25)
- What is going to happen next with GOLD, and will this resistance level result in it continuing to grow or reverse?
- My worrying prediction of what will happen with the NASDAQ 100, and my advice to you to pull maximum profits from this opportunity
- The “Double Top” Price Pattern on FB (Facebook) that suggests that this thing is about to go much lower (bad news for Zucks, good news for you).
- Plus much more
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