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Lots of FX indecision but US stocks bullish.

August 9, 2020

Last week: It was primarily a week of indecision for the Forex pairs I monitor but the US stock index majors closed strongly such that the S&P500 is now just 42.24 points off its all-time High. Friday’s better than expected NFP result would no doubt have helped US stocks. The numerous indecision weekly FX candles meant there were few trend-line breakout action of note and, with the US$ still hovering near the recently broken 10-year bear trend line, I’m wondering what the catalyst might be that could get the US$ moving again; either up or down?

 

Technical Analysis: As noted over recent months, it is important to keep in mind that this analysis is Technical and chart-based but that any major Fundamental news items, as recently seen with Coronavirus, have the potential to quickly undermine identified chart patterns. This is why it is critical that traders appropriately manage their trade exposure and risk per trade during these volatile market conditions.

 

Trend line breakouts and TC signals:  It was a relatively quiet week for breakouts. Articles published during the week can be found here, here, here, and here:

  • Gold: a TL b/o continued for up to $90.
  • EUR/USD: a TL b/o  for 90 pips but the move is up around 540 pips from the previous multi-week Flag pattern.
  • AUD/JPY: a TL b/ for 70 pips.

 

  • This Week: (click on images to enlarge):
    • DXY: US$ Index: The US$ closed with a bearish-coloured Spinning Top weekly candle reflecting indecision as the index continues to hold near the recently broken 10-year support trend line and this remains the level to watch for any new make or break.  

 

DXY weekly: 

 

 

    • Indecision weekly candles: these appeared again last week and were printed on: the DXY, ASX-200, Crude Oil, EUR/USD, AUD/USD, AUD/JPY, GBP/USD, NZD/USD and USD/JPY.

 

    • Central Bank updates: there is only one update this week and this is from the RBNZ (NZD).

 

    • Copper: Copper is often viewed as one metric of economic health and it closed with a bearish weekly candle as the metal consolidates below a 10-year bear trend line and the whole-number 3 level. Watch for any Bull Flag type activity though:

 

Copper weekly:

 

 

    • Multi-year trend lines: As noted last week and the caution remains valid: multi-year trend lines have been tested / broken on a number of instruments: The FX Indices (DXY and EURX) and the EUR/USD, AUD/USD and NZD/USD. Trend lines of such duration are often not given up easily so traders should watch for any potential choppiness / consolidation as these levels are negotiated.

 

    • S&P500: Keep the bigger picture in perspective with the recent moves:

 

S&P500 yearly: keep this latest move in perspective:

 

 

    • Currency Strength Indicator: note the recent recovery with the USD:

Currency Strength Indicator (4hr): 

 

 

    • Market Phases: It is important to recall the three main types of market phases: Accumulation, Participation (Up and Down) and Distribution. Traders should monitor the chart of the S&P500 chart for any Distribution type activity that might eventually lead to Participation Down; especially as the S&P500 heads back to testing its all time High: The chart below shows how the S&P500 evolved in the years leading up to, and during, the Global Financial Crisis (GFC). Note how the Distribution phase evolved over a period of many months and there was a double test of the all-time High region. Keep this in mind with the current market action on the S&P500.

 

S&P500 market phases: Global Financial Crisis 2007-2009:

 

 

S&P500: keep watch for any Distribution type of activity:

 

    • DJIA weekly: The DJIA closed with a bullish weekly candle and note the new triangle breakout. Watch for any push to the previous High:

 

DJIA weekly: 

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle and note the breakout from the Bull Flag I had warned about last week! Recall, also, that I had recently suggested 12,500 might be the next near-term target as this is near the 61.8% extension of the range breakout move:

 

NASDAQ weekly: 

 

NASDAQ weekly + Elliott Wave extension: 

 

 

    • DAX weekly: The DAX closed with a bullish-coloured Inside weekly candle reflecting some indecision:

 

DAX weekly:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and closed with bullish weekly candle and note the bullish trend line breakout! Traders should watch for any push to recent High, circa 1,720:

 

RUT weekly:

 

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with another small bullish weekly candle, however, note the pullback that is still being suggested by the Elliott Wave indicator:

 

TLT weekly:

 

 

    • VIX: the Fear index closed with another bearish weekly candle and the Index is still below the 30 level so watch this region for any new momentum based make or break:

 

VIX weekly: watch the key 30 level for any new momentum based make or break:

 

 

 

Calendar:    Courtesy of Forex Factory:

 

 

 

Earnings: Courtesy of Earnings Whispers: Watch for impact from Earnings this week:

 

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bullish-colored weekly candle and is only 42.24 points below the all time High of 3,393.52. I am still seeing divergence though as, whilst price action tracks higher, trading volume (as revealed in the SPY ETF chart below) is trending lower so an element of caution is required.

 

S&P500 ETF: SPY weekly: Volume is still low and below the moving average AND the bear trend line:

 

 

Price action is trading just below 3,355 so watch this for any new make or break.

Bullish targets: any bullish 4hr chart break above 3,355 would bring the previous all-time High, near 3,400, into focus.

Bearish targets: any bearish 4hr chart hold below 3,355 would bring 3,300 and 3,200 back into focus.

  • Watch 3,355 for any new make or break:

 

 

 

ASX-200: XJO: The ASX-200 closed with a bullish-coloured Spinning Top-style weekly candle reflecting ongoing indecision as price continues trading near the psychological 6,000 level and under the weekly 61.8% Fibonacci level. Momentum remains low on the 4hr, daily and weekly time frames AND trading volume was a bit lower last week so keep watch for any new uptick with both Volume and Momentum.

 

XJO weekly: trading Volume remains below the bear trend line:

 

 

The 6,000 level and weekly 200 EMA remain as the S/R levels to watch for any new make or break and there are revised 4hr chart trend lines to monitor as well.

Bullish targets: Any bullish 4hr chart triangle breakout above the weekly 200 EMA would bring the recent High, near 6,190, into focus followed by whole number levels on the way back to the previous all time High, circa 7,200.

Bearish targets: Any bearish 4hr chart break below 6,000 would bring the bottom trend line of the 4hr chart triangle into focus followed by the 5,000 level.

  • Watch 6,000 S/R and the weekly 200 EMA for any new momentum breakout:

 

 

Gold: Gold closed with a bullish weekly candle and above the key $2,000 level and this is the key level to watch in coming sessions for any new make or break.

Weekly chart: As mentioned over recent weeks, the weekly chart has the look of a broad Inverse H&S pattern or some may see this as a broad Cupping style pattern. Both are rather similar though as they are bullish patterns and suggest follow-through to the order of magnitude of the depth of the Cup / height of Head. In this case, that move is of around either $800. Keep watch of $1,900 now that price action is trading above this neckline region!

Traders need to watch this $1,900 level over the coming days / weeks especially as the US$ index is struggling at a 10-year support trend line:

  • any US$ hold below this multi-year support trend line could help send Gold much higher.
  • any US$ recovery above this support trend line could keep Gold range-bound. This would help to further develop the Inverse H&S pattern.

There are revised 4hr chart trend lines to monitor for any new breakout.

Bullish targets: any bullish 4hr chart triangle breakout would bring whole-numbers on the way up to the $2,700 target into focus.

Bearish targets: any bearish 4hr chart triangle breakout would bring $2,000 followed by $1,900 back into focus and note how $1,900 is near the 4hr chart’s 61.8% Fibonacci level!

  • Watch for any new 4hr chart triangle breakout:

 

 

Oil: Very little has changed here again as another Spinning Top weekly candle was printed; albeit this time it was bullish coloured.

Price action remains trapped under the Jan-April 2020 swing Low 61.8% Fibonacci level and momentum remains low on daily and weekly time frame.

Bullish targets: any continued bullish daily chart triangle breakout above $43 and the 61.8% Fibonacci level would bring whole-numbers into focus on the way up to the $50 S/R region.

Bearish targets: any bearish retreat from the 61.8% Fibonacci level would bring $40 and $35 followed by $30 and $20 and, then, the recent Low, near $6.50, into focus.

  • Watch the the 61.8% Fibonacci level for any continued daily chart triangle breakout:

 

 

 

EUR/USD: Not a lot has changed here this week as the EUR/USD printed a bearish-coloured indecision weekly Doji after the recent break of a multi-year bear trend line. The breakout from the daily chart’s Cup ‘n’ Handle pattern remains at around 500 pips of the projected 700 pip move.

Price action closed back down near the 13-year bear trend line again so this remains the level to watch for any new make or break but there are revised 4hr chart trend lines to monitor as well.

Bullish targets: Any bullish 4hr chart triangle breakout would bring whole-number levels on the way up to the previous weekly chart High, circa 1.26, into focus.

Bearish targets: Any bearish 4hr chart triangle breakout below the 13-year bear trend line would bring 1.15 into focus as this is near the 4hr chart’s 61.8% Fibonacci level. After that watch for whole-numbers on the way down to 1.12 S/R.

  • Watch for any 4hr chart triangle breakout and the 13-year bear trend line for any new make or break:

 

 

 

AUD/USD: The Aussie closed with bullish-coloured Spinning Top weekly candle reflecting indecision as it hovers above the recently broken upper trend line of the multi-year bullish-reversal Descending Wedge.  

Bullish targets: Any bullish momentum break back above 0.72 would bring whole-number levels on the way up 0.90 into focus.

Bearish targets: Any bearish break back below 0.71 would bring 0.70 into focus followed by 0.69 and, then, the 9-11 year bear trend line.

  • Watch 0.72 and 0.71 for any new make or break;

 

 

 

AUD/JPY:  Not a lot changed here this last week. The AUD/JPY closed with another bullish-coloured indecision-style Spinning Top weekly candle as price action chopped above 75 S/R but below a 7-year bear trend line.

How the AUD/JPY reacts at the 7-year bear trend line above might depend on how the S&P500 reacts as it nears its all-time High so keep an eye on both!

The AUD/JPY is trading just below 76 S/R so this would be the upper region to watch in coming sessions for any new make or break. The 75 level is the lower level to watch.

Bullish targets: Any bullish 4hr chart move above 76 would bring 77 and the 7-year bear trend line into focus.

Bearish targets: Any bearish 4hr chart break back below 75 would bring the 74 and 73 S/R back into focus.

  • Watch 75 and 76 S/R for any new make or break:

 

 

 

NZD/USD: The Kiwi closed with a bearish-coloured Doji weekly candle reflecting indecision as price action continues to hover above the recently broken resistance of the 7-year bear trend line.

I’d mentioned last week that these big levels are not given up easily and to watch for any potential choppiness and this is what we got!

Bullish targets: Any bullish bounce up from the 7-year bear trend line would bring 0.67 and, eventually, 0.70 S/R into focus.

Bearish targets: Any bearish break back below the 7-year bear trend line would bring 0.64 into focus as this was a recent reaction zone.

  • Watch the 7-yr bear trend line for any new make or break; especially with this week’s RBNZ rate update.

 

 

 

GBP/USD:  The GBP/USD closed with bearish-coloured Spinning Top weekly candle reflecting indecision as price struggles at the weekly 200 EMA.

The breakout from the daily / weekly chart triangle has not gained much more but the target remains as the previous High, circa 1.35.

The monthly chart is still presenting with a bullish Double Bottom and the 12-year bear trend line on this chart remains as the level to break and hold so as to confirm any bullish monthly-chart pattern.

Bullish targets: Any bullish 4hr chart breakout above the weekly 200 EMA would bring whole-number levels on the way to the recent daily chart high, circa 1.35, into focus.

Bearish targets: Any bearish 4hr chart break breakout below 1.30 would bring whole-number levels on the way down to 1.26 into focus.

  • Watch the weekly 200 EMA for any continued triangle breakout;

 

 

 

USD/JPY: There was not a lot of change here this week as the USD/JPY closed with a bullish-colored Doji weekly candle reflecting indecision.

There are revised triangle trend lines on the 4hr chart giving traders trend lines to watch for any new momentum breakout.

Bullish targets: Any bullish 4hr triangle breakout would bring 107.5 into focus as this is near the 4hr chart’s 61.8% Fibonacci.

Bearish targets: Any bearish 4hr triangle breakout would bring the monthly 200 EMA followed by 105 back into focus.

  • Watch for any new 4hr chart triangle breakout: