Currency markets movements are getting even slower as we head deeper into summer, exactly as I’ve been warning you over the last several weeks.
However, this doesn’t mean it’s impossible to profit as long as we’re careful and patient. That’s because there are some very interesting long term trades worth investigating right now.
I’ll discuss those in just a moment, but first let’s take a look at the weekly chart of the U.S. dollar index as so many trades flow what what’s happening there.
We can definitely see the summer doldrums here.
On one hand we’re tracing out a bearish descending wedge price pattern. Remember, this pattern signals a reversal in direction from a market that was moving higher. Therefore I expect the long term direction of the dollar to continue lower.
However, we’re also in a potential support area denoted by that long bullish bar late last year. That was a large key reversal where it made a new low then closed at the high. And that’s where we’re likely to find some support in the U.S. dollar.
In fact, we can see that in the last couple weeks we’ve formed this potential double bottoming price pattern due to the descending triangle. However, I don’t expect a huge rally from here and I think the best we can expect is a continued trading range for the next several weeks going forward.
We did have a bullish jobs report last Friday via the NFP and we also have an important FOMC meeting this Wednesday in which we’ll learn future direction of U.S. interest rates. It’s expected that the U.S. Fed will stay on a hawkish note, so there’s at least one more interest rate hike in the U.S. for 2017. That should provide some underlying support in the U.S. dollar.
But let me repeat: I expect us to stay in a trading range rather than experience any big USD rallies from here.
Caution in the Euro Except For One Key Pair
Let’s take a look at the weekly Euro chart versus the US dollar.
With my thinking that the US dollar is going to find support, we can assume we’re at a Euro resistance area at 115 – 117 right now. In fact, we had another inside week bar — that’s where the high and the low finished within the high and low of the previous week.
Furthermore, I don’t really trust breakouts in this summer environment right now. So I would be skeptical of any breakout above this resistance area at the moment. I believe we’ll continue consolidating here for a couple more weeks before shooting higher.
With that in mind, one of the more interesting looking Euro pairs is the Euro versus the Australian dollar (EURAUD). On this weekly chart, we’re tracing out a very aggressive inverted head and shoulders price pattern — that’s typically a reversal price pattern.
One of the more interesting things to note with this particular inverted head and shoulders is the left shoulder sitting lower than the right shoulder to form an ascending neckline. Therefore this signifies not just a reversal market but one that’s likely to shoot up quickly.
So in this case if we were to thrust through this neck line at about the 153 – 154 price area we can expect a continued thrust higher in EURAUD.
What’s Coming in GBPNZD
One of the more dramatic charts in the last several years is the weekly British pound against the New Zealand dollar. Beginning in the October/November timeframe in 2016, I was predicting a huge turnaround in this pair from what had been a giant bear market.
The reason for my optimism is the huge double bottom price pattern at or near the 170 price level that took place in late 2016 and early 2017. If you’re one of my Pattern Trader members we took several trades in this area beginning in the low 170s.
We rode those trades all the way to the mid 180s and took over 2,000 pips in the second quarter of 2017.
You can see that we thrust above the neckline and now we’ve come back to retest the low 170s. Now we’re looking at a new, even more formidable opportunity to begin accumulating a long position in GBPNZD again.
You can see that GBPNZD made a notable key reversal with a new low and then a close on the high. I don’t think we’ll see a low under this key reversal bar for the foreseeable future.
So for all intents and purposes I believe we’ve made an important low in this pair.
There could be continued consolidation in the current price area, of course. But ultimately we’re looking at perhaps three months of trading sideways before we have a major turnaround in this pair.
So what should you do? If you’re looking at the long term, start accumulating positions at or near current price levels. You’ll need some patience as we could see a trading range through to August. But I strongly believe we’re going to be looking at much higher prices three, six, even nine months down the road in GBPNZD.
While on this topic and the 2,000 pips we made in this pair, I should mention my LIVE 2-Day Bootcamp that’s coming up.
I’ll show you exactly how to make currency trades like mine, including my “Lazy Trader’s” 5-step execution plan that’s pulled in more than 6,108 pips in the last 12 months. Plus LIVE trades where you can look over my shoulder as I pick trades.
Now let’s review the Canadian dollar versus the Japanese yen on the weekly chart.
For some time now I’ve been predicting the demise of JPY against most of the major currency pairs and in last week’s price action we certainly saw that. Especially in the Canadian dollar versus Japanese yen.
If you took my weekly trade on June 19th, I suggested getting in CADJPY at 84.41 and our take profit was triggered at 88.17. So we made about 375 pips on that trade in the last three weeks.
I’m actually bit wistful that profit was triggered because I think there’s a lot more potential on the upside. However, I also believe we’ll get another opportunity to buy in again.
You see, the reason I’ve been bullish on CADJPY is because several bullish price patterns have emerged over the last several weeks and months starting off with that big double bottom at about the 74/75 price area. The price action made an all time new low and then closed on the high twice.
Those large range bars point in the direction this pair is looking to go.
Plus I should also point out that in addition to the double bottom bullish price pattern in weekly CADJPY, I can also make the case for a inverted head and shoulders price pattern too.
Unlike the EURAUD price pattern, this is a symmetrical inverted head and shoulders where you see the left shoulder and the right shoulder at the same level with each other to create a horizontal neckline. Again, that’s very bullish.
What typically happens with these price patterns — as we saw in GBPNZD already — is a breakout above the neckline and then a retest of that neckline. It’s on that retest that we really want to go to town and load up.
So I’m looking at the future direction of CADJPY with a view to getting in at a better price than what we’re seeing right now.
An Oil Move For Aggressive Traders Only
Moving on now to some commodities markets, let’s take look at the U.S. crude oil weekly chart. I have been very bearish on oil going back many months and even many years.
Right now we’re looking at several months of what I call a rounding top. The neckline is at the $39 area and we had a nasty key reversal last week where we made a high before closing on the low.
If you’re somewhat aggressive, start lining up some short positions in USOIL here. But if you want to wait for a breach of the $39 price area, that’s a bit safer and it’s where I think oil will start to crash and burn with a retest under the $30 price area.
4,555 Pips in Gold
So how about spot gold?
Those of you on my elite Pattern Trader list as well as my special gold program took 470 pips last week on the short side of gold.
If you take a look at the ascending broadening formation, you can see it starts out narrow and broadens out until last week when we broke below the lower support line within the ascending broadening price pattern. I suspected this would happen because at the 1,300 area there was a prominent double top and a key reversal right at the top. I was very bearish and we’ve just cleaned up shorting gold.
I did back off on Friday because I think that gold may have found a temporary support area on gold (see the big green arrow) and we may be looking at a consolidation area between 1,200 and where we are right now.
I retain a heavily bearish bias on gold based on the weekly and monthly charts but because of the near-term support, I’ve taken my profits and I’m going to wait for another opportunity in XAUUSD.
I’d like to remind you that I have a special gold program if you love trading gold. Here are all the spot gold trades I’ve made since September 2015.
In the last year and a half I’ve taken out 4,555 pips trading XAUUSD.
That’s why I created a specific and highly disciplined Gold program where there’s only one or two trades a month. These are high probability trades but you have to be patient for them.
NASDAQ100 is the technology index of the U.S. stock market and as I pointed out last week, there’s a rather ominous potential looking double top there. We see the market made an all time new high several weeks ago and then failed and closed lower. The same thing happened when it retested that high. There was a new high and then a close at the low part of the week.
This market isn’t dead yet, though. The NASDAQ 100 just refuses to die. It’s inherently a very bullish market and so this makes it very difficult to call a top. However, that double top should cap the market for quite some time.
For now don’t try to short NASDAQ100 or go long either. I’m keeping my eye on this one, but your guess is as good as mine as to where the next big move will be in NASDAQ 100.
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As always, I wish you a happy and profitable trading week. Until next time …
Mark Shawzin, Pattern Trader
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