This year is getting more and more interesting for big trades based on price patterns.
So let’s get started on what looks best for near-term wins right now:
Over the past several months, the US Dollar Index (USDI) has been trapped within a sideways trading range. USDI (and therefore USD) trading has been a little bit “cat-and-mouse” as traders waited to see whether USDI would break to new highs roll over from current levels.
Well, what a difference a week makes! Based on negative USD price action last week, I think the waiting game is now over.
With last week’s bearish key reversal and break below the monthly support line, it appears USD is poised to head lower against most other major currencies – most notably vs the British pound (GBP).
Here’s what the USDI looks like right now.
Not only is that uptrend broken, but we also had a couple of historical hints that USDI going down was more likely than going up:
That double top and more recent rounding top appear to have been confirmed by last week’s key reversal.
Remember, a key reversal always points in the most likely direction the price will travel for the next several bars. So USDI should be moving lower over the next several days and weeks. The last vestige of support is at the 1.21 level and after that USDI should roll over for a much larger drop.
The EURUSD pair (Euro against the dollar) offers further support for the idea of a weaker U.S. dollar in the near term.
EURUSD recently formed a classic bearish head and shoulders pattern as you can see here:
But instead of breaking lower, support held at 1.12 on not one, not two, but three separate occasions with key reversals. That’s very bullish.
Last week’s key reversal will be confirmed when EURUSD can cross 1.16 in the short term and 1.18 soon after that Breaching both those levels would cement a new uptrend in the EURUSD pair.
However, the Euro isn’t the best candidate on which to speculate with USD weakness right now.
That’s where the British pound comes in …
Remarkably, the Brexit-burdened GBPUSD broke out much higher last week and closed above the 1.30 resistance price level that had ushered this pair lower since last May.
The signs were there earlier, although I didn’t expect such a large move so quickly.
But things looked good enough in mid-January that I began recommending long positions in GBPNZD, GBPUSD, GBPCHF and GBPJPY (that’s the British pound against the New Zealand dollar, U.S. dollar, Swiss France and Japanese yen, respectively).
We’re already sitting on gains in excess of 500 pips in long positions in GBPNZD and GBPCHF. And despite yesterday’s “mini-reversal” in GBPNZD, I remain very optimistic about the long-term prospects of the upside potential of that pair.
There are a lot of good reasons for that, so let’s look at GBPUSD first at the monthly level to give us a very long-term view.
As you can see, GBPUSD was an outstanding performer against USD with a very large and strong key reversal that’s created a double bottom.
The double bottom won’t be confirmed until GBPUSD can close over the neckline at 1.44 which is some distance away (remember this is a monthly chart).
However, I think we’re off to a cracking start with the key reversal that took out several recent monthly highs and appears poised to power higher in the immediate future.
That’s why GBP is the strongest major currency right now. Here’s a look at the weekly view …
Here we can see the common market phenomenon that price usually leads (i.e. predicts) events. You probably know that the British government was under extraordinary pressure due to Brexit and there was much speculation that Theresa May would be able to stay on due to the outcome of a no-confidence vote a few weeks back.
But even before the outcome of those turbulent events, prices were already firming up and indicating a bullish future for GBP. So even with all the background noise, the GBPUSD price was already telling us several weeks in advance what was most likely to happen. (This is why you shouldn’t pay too much attention to endless media chatter and speculation – the real truth can be found in the market where real traders are putting real money on the line based on what they know.)
GBPUSD formed an Eve and Adam double bottom. That’s where one bottom (Eve) was rounded and the other bottom was a single spike (Adam). This type of double bottom can appear in either order, by the way. Sometimes Adam comes first and sometimes it’s Eve. The key difference between them is that Eve bottoms are wider and more rounded. Adam bottoms are narrow, V-shaped, and sometimes consist of just one long price spike.
Anyway, on the back of this double bottom, we’re now approaching major resistance at the 1.32 level. Once GBPUSD breaches that, it would confirm the uptrend at the weekly level. I think it will happen quite soon.
It might be worthwhile to show you how I enter trades once I see something I like. Here’s an example of a GBPNZD trade recommendation on January 15 (just two weeks ago). I recommended buying GBPNZD at 1.8915 with a buy stop.
Now it’s trading 375 pips higher at almost 1.9300. That’s a great trade so far and I think it will go much higher.
Here’s why I think so…
The basis for my buy recommendation was the historical double bottom and rounding bottom which shared a common neckline.
We recently revisited that support area where the price held up with a key reversal. Now momentum continues to be strong and I expect to see 2.05 in the foreseeable future. That’s my target and if it gets hit this trade will be good for over 1,500 pips profit.
(I also made a similar buy recommendation in GBPCHF because of similar bottoming action with strong upside potential. That trade is also doing quite well, but I think we’ve spent enough time on GBP for today.)
It’s time to move on to the AUDUSD (Australian dollar against the U.S. dollar) pair.
As with GBPUSD, a similar reversal seems to be underway in AUDUSD.
AUDUSD appears to have formed a long-term bullish double/triple bottom price pattern although they’re separated by a long distance on this weekly chart. Note that the price turned around at the same level each time – that’s the most important factor here.
And we certainly can’t ignore such a very powerful key reversal that occurred over the holiday season. Most recently, we also saw a much shorter but still significant key reversal last week.
All this price action adds up to make an increasingly bearish case for USD. Accordingly, penetration above the high of last week’s key reversal bar in AUDUSD could result in a big move to the upside.
There will be some resistance at the 0.74 level (and possibly some sideways action there) but after that I believe AUDUSD could run to 0.78 and over.
USDJPY (the dollar against the Japanese yen) requires a bit more patience, though.
I’m still very bearish on this pair, especially after its monster move down over the holidays.
But for now I’m on the sidelines and watching how the price consolidates after that single very long bar. I feel this will break to the downside, but not just yet.
If you’re impatient, a good way to probe this is to place a sell order just below last week’s low.
However, the price could very well keep rising to test the upside of the descending triangle before rolling over once again. That’s what I’m waiting to see before putting on another short in this pair. There will be lots of pips to be made on USDJPY soon, but not just yet.
I have the same patient view on spot gold too.
For the past few weeks, XAUUSD (spot gold) has been trading close to a break-out of a very long-term monthly symmetrical triangle price pattern.
Price is hovering at the very edge of the triangle, as you can see. However, it hasn’t broken out yet.
We need to be a little more patient, but the weekly chart tells us it shouldn’t take too much longer
XAUUSD made a double bottom and survived not one but two rectracements to test the neckline of that double bottom.
Then last week’s key reversal in XAUUSD suggests we’re on the cusp of a major breakout in this pair. That would mean prices in the yellow metal rocketing much higher over the course of the next several years.
Not yet, though. For now we must wait until the near-term resistance at 1310 and subsequently 1340 is taken out. That will confirm that gold is ready to REALLY shine.
Let’s take a look at the stock market and a couple of key tech stocks now.
Since establishing a major key reversal in late December, U.S. stock indices have been rocketing up again. The Nasdaq (tradeable with the QQQ ETF acting as a proxy) has risen 15.7% from its lows on December 24. It’s currently trading near a major resistance level around 168.
If QQQ can’t break through and rolls over, we’ll likely see a drop to previous December lows.
On the other hand, there’s also a bullish case for QQQ:
The double bottom we see here has acted as a springboard to propel QQQ higher. The recent retracement has left QQQ with enough energy to attack recent highs and push even further.
Right now I’m undecided which way QQQ and the other major U.S. stock indexes will go.
But there are a couple of individual stock charts that actually look quite bullish right now. Apple (AAPL) is the first example I want to show you.
The cup and handle formation is very bullish. I think AAPL could trade up to the mid 170s based on that pattern. After all, the flood of negative AAPL information seems to have been fully discounted by now. I’m personally long AAPL calls in expectation of a short-term rally.
Facebook (FB) also looks promising for a further rally:
FB formed a strong double bottom and right now it’s trading a hair above the neckline created by that pattern.
I think FB could move to 170 now that it’s re-tested the neckline. I’m basing that target on the magnitude of distance from the low (second double bottom) to the neckline. The rise should be of similar magnitude if it happens.
So there you have it for this week. I expect strength in GBP and XAU, plus AAPL and FB. I expect weakness in USD. I’ve placed my trades accordingly.
In the meantime, you can “get the jump” on that potential future announcement by booking a
I wish you a very healthy and prosperous trading week.
It’s never too early to learn just how well my methods work in the forex market even if things are projected to be a bit quiet there for the next little while.
If you’re interested just check out that link.
Seats are limited so don’t delay!
Mark “MajorUSDTurn” Shawzin