It’s been an interesting week in the markets. Certain trends are starting to gather steam and offering lots of promise for future profits.
What’s more, recent events have demonstrated that you simply must trade based on price action, not on the news. In fact, some of these trends have been declared “astonishing” by some of the country’s leading economists.
So let’s get started on the latest update, starting with this long-term chart of the USDI (US Dollar Index) which plots the US dollar against half a dozen of the major currency pairs.
I’ve referenced this chart many times before, but I think it’s important to reinforce a historical perspective, especially in view of the price action that we’ve seen in the last couple of weeks.
Despite the fact that there’s been a 10-year run in the USDI, the dollar is still in a stealth bear market. Because if you look at the latest run in the context of the last 45 years, USDI remains within a long-term descending triangle.
Recent price action notwithstanding, that 10-year rally has stalled at a double top resistance level right at the long-term downtrend line of the triangle.
That’s why the current level has always represented an infection point and potential major reversal level.
This is especially important when you see how USDI trends last many years at a time. From 1975 to 1985 USDI rose and then from 1985 to 1995 it dropped. From 1995 to 2000 it rose again before falling for the next five years to 2010. The last 10 years have been another rise.
Going by this history, USDI looks set for another major drop that could take as many as 10 years to play out.
Now for a closer look with a weekly chart:
The double top evident on the 45-year chart is visible here. And recent price action suggests USDI has formed a bull trap where all the bulls who chased the recent rally got trapped above the breakout area before prices dropped back.
Now USDI has broken lower and has even pierced below its recent, small descending triangle.
This looks like a green light for the dollar to keep dropping, although there will be support areas (including the nearby uptrend line) where USDI could get jammed up for a while and even retrace a portion of its descent.
However, I think the dollar’s descent is all but assured.
It follows that if the US dollar is going lower then certain dollar pairs will go higher against a weaker dollar.
EURUSD (the Euro versus the US dollar) is certainly one of them, and that’s what we’re seeing here.
After hitting a long-term bottom at 1.04 – 1.06, EURUSD couldn’t push down any further. And when something can’t go one way, it usually explodes in the other.
There’s potential resistance at the 1.15 level which might cause EURUSD to go sideways for a while, but EURUSD seems to have bottomed by now. I would use any dip as an opportunity to get long for the long-term.
This two-chart pair of USDI is why it’s very important to look at the charts from a long-term perspective.
And now for another key point: it’s one of my key philosophical principles that outlier events like the coronavirus pandemic push prices to where the markets were already heading, but at a faster pace than otherwise would have occurred.
AUDUSD (the Australian dollar versus the US dollar) is an excellent example of this phenomenon:
For many years I was very bearish on AUDUSD based on its long-term downtrend and its governing intermediate double top which acted as a continuation pattern for that downtrend.
What I mean by ‘continuation pattern’ is that the double top arrested a weak rally. Once AUDUSD went through the neckline of that pattern, it dropped lower and lower.
That’s why I expected AUDUSD would eventually pierce its long-term support at 0.67. While that “floor” held since 2015, the more you test a price level, the more likely it is to get taken out eventually.
That’s exactly what happened with the coronavirus panic. There were a lot of sell stops below 0.67 and they all got triggered at once. This took the market from 0.67 down to 0.55 in a hurry. Then it rebounded just as swiftly, all the way back to its downtrend line.
This price action created what looks like a bear trap where all the bears are trapped. It looks like AUDUSD is going higher thanks to US dollar weakness, now the only question is in what time timeframe.
For now, AUDUSD has hit resistance at 0.70 with even more resistance a bit higher at 0.72.
However, I think the bottom is in for AUDUSD. I don’t expect the 0.55 low to be taken out and that means the long-term trend is now up. AUDUSD might dip again, or just slide sideways for a while before making another determined run-up.
But the direction to bet is on the upside here, just as with EURUSD. I’ll be watching to see how it unfolds.
Here’s USDCAD (the US dollar versus the Canadian dollar) and this chart also confirms my anticipation that the US dollar is going to fall:
Note that this chart will drop on USD weakness as USD is the base currency in USDCAD (i.e. the first currency). Whereas with EURUSD and AUDUSD, the USD is in the quote currency position and the second position in those pairs. In forex, the first currency is always measured against the second one.
So USDCAD will drop on USD weakness while EURUSD and AUDUSD should rise for the same reason.
I strongly believe USDCAD is going to drop more. It’s forming a long-term double top at the 1.45 price level. This double top won’t be confirmed until USDCAD pierces the neckline around 1.25. There’s another support at 1.30 before that neckline is reached.
But breaching either level (and especially both) will open up much lower prices. Note also that USDCAD has broken below its descending triangle pattern already.
So I think we can form a thesis that USDCAD will go lower over time, just like USDI. This pair is on a trajectory for the 1.30 level and below over time. Look at any allies in USDCAD as opportunities to get short.
Now I’m going to discuss the performance of the Japanese yen versus a number of currencies.
To start, here’s USDJPY (the US dollar versus the Japanese yen):
I’ve talked about this chart ad nauseum because my anticipation is that we’re going to see lower prices in USDJPY over time.
However, this pair has caught some support in recent weeks and now we’re left to surmise if this is going to be a sustainable rally. I’m still very much on the bear side because of previous price action and fakeouts to the upside where prices exhausted themselves.
Look at the recent H top for two examples of where prices rose dramatically and then collapsed just as dramatically the next week.
So while many traders are asking if USDJPY will go higher, I don’t think it will.
To consider the bullish case here’s the same chart but using a long-term symmetrical triangle as the main pattern:
There’s still space for USDJPY to run before you can make a case for a genuine breakout. If USDJPY starts taking out certain levels to the upside, that could “bust” both the descending and symmetrical triangles and indicate a long-term rally in the pair.
So far that hasn’t happened.
Now of course I remain open to the fact that my analysis could be incorrect. If so, I will go long at some level and throw in the towel on the bear scenario.
However, I will await that verdict it and when it comes. I still feel USDJPY’s current up move is going to be a fake-out and eventually USDJPY’s downside trend will resume.
The JPY has been weak in general recently, which is probably why it’s been drawing so much attention.
The US is in turmoil.
With the highest unemployment rates EVER, the biggest predicted decline in the GDP EVER and a country divided on nearly every subject – the “experts” are predicting that the markets are in trouble.
Yet, the NASDAQ has reached all-time highs.
The so-called geniuses are scratching their head in confusion.
But traders like us know what they do not.
In this week’s video report, I shared why the Japanese Yen is full of opportunity at this time, and why the turmoil is resulting in many opportunities bubbling to the surface.
- The “green light” for the Dollar to continue to go lower (and why so many people got caught in this blatant Bear Trap) – this is a big practical lesson for all traders
- Is this the catalyst to the EURUSD exploding? What you should be looking out for before jumping into this trade (watch from 6.15)
- Why the Australian Dollar is going to go higher; the only question is how quickly is it going to happen and over what time-frame (watch from 7.50)
- The long-term downtrend on the EURJPY and why there COULD be 1000 pips on the table if this ONE thing happens (I’ll share what you should be looking out for)
- Why everything points to this obscure trade going significantly higher – it may just be the best trade on the board (watch from 23.36)
- Why the relationship between Gold & Silver is so important (yet not used by so many traders) – I explain why this ratio gives you an invaluable insight into what is going to happen
- The Key Reversals which shows why Silver is going to stall and fall back into the chop, yet why Gold has stalled but will continue to accelerate
- More proof of why you should STOP watching the news and making trading decisions based on world events
- Why the NASDAQ is seeing all-time new heights even though the US is at worst unemployment and the worst anticipated GDP declines (but my big warning to you)
- Plus much more
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