The USD Turns Around: What It Means For Everything Else

Last Friday we had the final jobs report for the month of August. Despite disappointing data, the US dollar index ended on a firm note for the week after bouncing at a key support area.

Last week, I predicted this turn of events as the dollar index was already at an area bounded by some support. Now that we’ve see last week’s key reversal, any encroachments to the downside will likely to be short-lived.

In fact, last week created a double bottom not too different from the earlier, more robust one back in May and July of last year. So now we’re looking at a twin area of support and that’s why I foresee some firming in the U.S. dollar, especially against the Euro.

Since the dollar index still features a bearish descending wedge triangle, this new strength in the dollar could re-test the breakout area at the base of the triangle).

Let’s look at some dollar related pairs and see how that might look in the coming days and weeks.

EURUSD Probably Topped Out (For Now)

First on the menu is EURUSD and last week we saw a key reversal where the pair made a new high and then closed on the low. This appears to be a very ominous price action in EURUSD and feels like a long term top for some time to come in EURUSD.

I predicted that this pair would rise enough to fill the gap at 120. Now that that’s been achieved, we could be headed back under the breakout area around 117.

So expect a lot of back and forth action in EURSUD in the 117-119 price area for the foreseeable future.

EURGBP Hits A Ceiling Too

I want to take you to a couple of Euro correlated pairs starting with EURGBP:

As you can see, last week featured a reversal where the market made a new high and closed on the low right in the area of previous resistance at 93. This now looks like a formidable area of resistance for EURGBP and we could be trading lower in this pair for some time to come.

EURAUD and EURCAD Confirm the Euro Top

So how about EURAUD?

We had a double top at the 162 area and now we’ve just created another double top at 152 with the latest key reversal last week.

Yes, this is very similar to earlier Euro pairs I’ve shown you.

Now we’ll see how the price action continues, but again this looks like formidable resistance and confirms current Euro weakness across multiple pairs.

EURCAD is no exception. There are multiple key reversals — huge ones, too — in EURCAD at 154, 160, and again at 154.

Now the latest one has occurred at 150 and again this makes the Euro appear vulnerable to a further slide going into the last part of 2017.

How Does GBPUSD Compare to the Euro?

In contrast to the selloff in EURUSD, the pound held steady last week.

Having said that, I don’t have any great expectations for GBPUSD at the moment.

That’s because we have a long term downtrend line still in force, one that’s been contained by the recent key reversal. I think the best we can expect for GBPUSD is some kind of a trading range between 126 and 130 (perhaps even 134) on the upside.

Time will tell us just how large the range will be but I’m not expecting a lot of dynamic action here. Even if the pound holds up relative to the Euro and NZD, the potential profit should be limited for the next couple of weeks.

I’ve Done Something With GBPNZD I Almost Never Do

Things are potentially much more interesting in GBPNZD, which is why I’ve been following it closely for quite some time.

There’s been some pivotal price action in the prior week as the price has broken out over the neckline.

That’s significant because beginning last year we saw a major test of the 167 area with a double bottom. Last week’s breakout above the 180 neckline could be the one I’ve been waiting for.

We might still see some further backing and filling, but I’d rather not take the risk of missing out. I feel you need to have a position in GBPNZD for the long term because of the potential for a very large and explosive upside move.

In fact, I feel so strongly about this that I haven’t even put a stop loss in this pair — I don’t get caught out by some volatility before the real move. Normally that’s something I would never admit to, but when I see a development like this, I think it’s just a matter of time before we see an upward climb in this pair.

That’s why I think the current GBPNZD action warrants your attention and perhaps putting some lots away for the long term.

USDJPY Proves Me Right Again

Just like with the US Dollar Index, my prediction of last week’s USDJPY action was scarily accurate.

If you recall from last week, I felt that even though USDJPY was in a descending wedge triangle, the support level at the current price was going to limit the downside in the near term. I said we would see prices contained at the 108 price area even if we thrust lower.

That’s exactly what happened.

Now I expect to see prices thrust to the upper boundary of the descending wedge and perhaps be contained within this pattern before it collapses south. So even though I’m still bearish on this pair thanks to the descending wedge triangle, we could see further upside momentum in USDJPY to perhaps the 112 price area in the short term.

NZDUSD: Look Out Below

This is a chart of NZDUSD and I believe the New Zealand dollar remains vulnerable to the US dollar on the downside.

A couple weeks ago I noted the false breakout in this pair where we saw prices break above the resistance area that had been in force for two years, and then fail to confirm the breakout.

Following that failure, I suggested going short and now have a couple of short NZDUSD positions at this time. I plan to hold them awhile longer, as I project this pair is going to retest the 68 area and perhaps even lower over the long term.

So consider getting short the New Zealand dollar pairs if you’re not already, as it seems the New Zealand dollar is the weakest currency on the board across the board against Swiss franc, Canadian dollar, British pound and certainly the US dollar too.

If you’d like to learn more about how to take the best advantage of this and other opportunities, you’ll love my LIVE 2-Day Bootcamp that’s coming up soon.

I’ll demonstrate 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.

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Don’t Jump On USDCAD Yet

In this chart I’m looking at USDCAD and there’s an emerging double top at the 137-146 price area.

However, despite penetrating under the neckline I’m a little bit leery of going short just yet.

We’ve had an extended ride from 137 to 124 already, and while USDCAD looks vulnerable to a further price erosion, I’d prefer to see a little bit more consolidation and perhaps even a rally in this area.

Now, I might miss a trade by being cautious here because the Canadian dollar on a relative basis is one of the strongest currencies right now. But I’d prefer to see a bit more consolidation first as we’re at a critical price level and any breakout is likely to retest the support level eventually anyway.

Having said that, it does appear we’re on the verge of a major breakdown in USDCAD. Just be a bit more patient before jumping in.

Lots of Work To Do Yet In USDCHF

With USDCHF, you might recall my warning that notwithstanding the very bearish and ominous looking triple top in this pair, as well as recent rounding behavior, there’s also a lot of support on hand to block a downward move.

That support came out in force with a key reversal week, so even though this pair has room to fall, it’s not yet “in the clear” to do so. There’s simply too much recent support right now.

And that’s why I think it will take a bit of backing and filling for USDCHF to create some space beyond that recent support and begin a sustained drop. In other words, it needs to rise up a bit and circle around before attacking support again.

The market needs to build space to rise or fall beyond significant support (or resistance, for that matter).

So don’t go short USDCHF just yet. We need to be more patient with this one, perhaps even more patient than with USDCAD.

U.S. Light Crude Oil: Drowned In Texas?

U.S. light crude oil has just weathered the biggest storm in the history of Texas.

Texas is of course a major oil producing and refining state, and yet crude oil weakened despite one of the biggest calamities in U.S. history. To me, this demonstrates the chasm between trading based on news, trading based on emotions, and trading based on events versus what the market’s actually telling us on the charts.

You can see that oil prices barely budged and actually slid a bit lower in the last couple of weeks. In fact, we’re sitting on the low for the last month or so.

So the long term bear market in crude oil still holds. If you’d been trading on emotion and thinking you should get long oil because of the crisis, you’d have been very wrong. That’s why we need to separate the emotions and only pay attention to price.

To me it’s not a question of if but when this crude oil market will be good to short.

In the context of the rounded top and the $30 neckline, I’m ready to wait until that neckline’s being tested.

Is XAUUSD Still Going Up?

The recent price behavior in spot gold (XAUUSD) merits an expanded discussion and so I want to start by looking at the monthly chart. Two of them, actually.

The first thing to note is that we started the big bear trend in spot gold with the descending wedge triangle I’ve drawn for you. These triangles are denoted by a sloping downtrend line that connects the highs and horizontal line that connects the lows.

Once this was violated, it heralded a bear market, one we’ve been in for the last five years. But now I’m seeing a new, emerging price pattern, several price patterns in fact.

Last month finished with a breakout of the recent symmetrical triangle.

If we measure the high of this triangle to the low, this projects to at least the 1,450 and even 1,480 area on the upside.

Now, this could be a false breakout of course. That’s because we’ve got a lot of resistance at 1,340 initially and then 1,380.

However, I did get long last week at 1,317. After all, despite my overall bearishness on spot gold, we could be on the verge of a paradigm shift. Or at least a move long enough and strong enough to hit the bottom edge of the descending wedge triangle and beyond.

Here’s what’s ahead to make this happen: there’s potentially a double bottom formed already with the neckline at 1,380. Should we get to this area and above that, we could see a whole new move in XAUUSD. So I’m guardedly long for now.

What does the weekly chart show us to support this view?

You can see we recently poked above 1,300 resistance in gold. It’s been an extraordinarily choppy market between 1,100 and about 1,380.

There’s a double bottom here, but lots of heavy resistance due to the key reversals in the last few years. The most ferocious was the post-election selloff once it was understood that Donald Trump was going to be the President — the market went up and then down $100 after that.

However, if we get above 1,340 then we’ve got 1,380 to fight past. There are also other areas of resistance at 1,400 so between where we are now and 1,400 it’s going to be an interesting ride.

I can’t say for sure yet that the recent double bottom is indeed the governing pattern in spot gold. But I did get long last week at 1,317 and expect to hold this position until the price tells me otherwise.

Super-Bullish Stock Markets Won’t Stay Down

I’m going to finish by taking a quick look at the U.S. stock indexes. As you can see the big bad bull market in the indexes is still intact.

We actually made a new weekly high on the NASDAQ 100, which is a proxy for the tech index. This market is still very much intact despite all the saber-rattling out of North Korea, the U.S. debt limits and things of that nature.

In fact, this market continues to climb a wall of worry as earnings remain robust and the employment picture remains robust in the US.

This is corroborated by the S&P500. We’re not at all time highs yet, but we’re just shy of them as you can see here:

The same pattern holds true for the Dow 30 industrials too:

So again this bull market is intact and we should not assume otherwise for quite some time.

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As always, I wish you a healthy and prosperous trading week. If you have any questions please email me: [email protected]

Mark Shawzin

Pattern Trader

 

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