It’s a good thing the summer doldrums are almost over.
We might very well see another few weeks of sideways action, but things are starting to look interesting for the rest of the year. Especially in the British pound.
I’ll discuss the pound in a moment.
But first, my thoughts on the U.S. dollar.
Last week, the dollar reversed course and closed on the low of the week after reaching its highest level in 18 months the week before.
That technical key reversal in the US Dollar Index (USDI) suggests a pause in the recent dollar bull. That means a probable sideways, directionless market condition in the greenback for the next several weeks. The rest of the summer, basically.
However, I think the dollar bull will resume once autumn sets in. We’re still seeing something of an inverted head and shoulders in USDI right now. And I expect some hawkish statements from various Fed and government officials — plus further trade war theatrics — will push the dollar up later this year.
So what about the Euro?
It follows that if the dollar is strong, then the Euro should be weak against it.
That’s what I believe the monthly EURUSD chart is suggesting. Off to the left of this chart, EURUSD rose from rose from .80 to 1.50 in a prolonged bull run.
But since then we’ve seen the pair trace out a descending triangle. Is this triangle a continuation pattern (bullish) or a reversal (bearish)?
I’m leaning more toward the bearish reversal thesis as EURUSD has been unable to sustain its most recent rally and has already pierced the neckline.
That doesn’t mean you should short the Euro immediately, though.
That’s because this is a monthly chart and it will likely take some time for a definitive short setup reveals itself. We might see a rally back to the top of the triangle before the ensuing hard drop below the 2017 lows.
But my bearish thoughts on the Euro are dwarfed by those I hold for the British pound.
GBP is quickly becoming one of the weakest major currencies due to political concerns over a no-deal Brexit event.
We’ve already seen a double top in this pair, plus there’s an emerging head and shoulders shaping up too.
Plus GBPUSD has dropped below the 1.30 neckline too. A retest of that neckline might happen but any GBPUSD rally is an opportunity to get short.
In fact, the pound is looking bearish against even the Euro if you review EURGBP:
A triple bottom set the low back in 2015. The uptrend we’ve seen since has been strong, and most recently a rounding bottom has formed. EURGBP looks ready for another ascent later this year.
Look for penetration above the neckline of that rounding bottom if you’re interested taking a long position here. Going long here means shorting the pound too.
In fact, shorting the pound against pretty much everything seems promising for the remainder of 2018.
That’s because there’s significant weakening of the pound against most of its trading counterparts. There are bearish technical price patterns not just in GBPUSD but also in GBPCHF, GBPAUD and GBPJPY.
Taken together, these strongly suggest the GBP bear trend is likely to gather steam into the fall. The best of them looks to be GBPAUD (the pound against the Australian dollar):
There are three governing patterns in this pair:
1) The bearish descending triangle in 2015 which heralded a large drop. Notice how GBPAUD retraced to hit the neckline (and then some) before plunging several hundred more pips.
2) The bullish triple bottom, which broke the neckline but since then has sagged back down and appears unable to sustain any momentum. I think this pattern is busted.
3) The recent and bearish head and shoulders pattern, which indicates to me that the GBPAUD market is rolling over and ready to weaken significantly.
In fact, last week was a bearish key reversal. I think we’ll see new lows soon.
For a short term play on this bearishness, consider selling at 1.7507 or better with your stop loss at 1.7651. Ride GBPAUD down to 1.7217
So the idea is to use any decent rally as an entry before what I feel is an inevitable downturn.
Meanwhile the Japanese yen is as strong as the dollar is weak, even against the mighty U.S. dollar.
That’s why I’m also seeking to short USDJPY (the dollar against the yen).
The governing patterns are the historical head and shoulders and the more recent descending triangle.
Even if USDJPY slides sideways for awhile longer, I’m very confident it will head lower, with a significant drop rewarding any short position taken in the near term.
That’s because the price is “coiling” at the upper end of that triangle price pattern and should release its contained energy soon. Any breach below the low of last week’s trading range will likely open a path for much lower prices.
So I suggest putting a sell stop at 110.05 with your stop loss at 111.57. Then ride USDJPY as low as 107.17.
I did in fact recommend this same trade before but the stop loss was unfortunately triggered with the fake breakout above the descending triangle trendline.
This time I think we’ll get a bit luckier and a lot more profitable.
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