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Multi-year trend lines being tested.

August 2, 2020

Last week: The US$ weakness I had warned about three weeks back continued last week and this helped to support / develop trend line breakout moves on Gold, the EUR/USD, AUD/USD and GBP/USD. The run on the EUR/USD since my first alert has reached up to 500 pips so I hope some of you headed my warning! These breakouts could have more to run too IF the US$ fails to hold at the 10-year support trend line; a place where it is currently sitting rather precariously. In Yin and Yang fashion, with the US$ testing major support, the EUR/USD, AUD/USD and NZD/USD have all made new bullish breakouts above multi-year trend lines and Gold is up at all-time Highs. US stocks were helped during the week when Jerome Powell pledged that the Federal Reserve would continue to keep the US economy supported amid Covid-19 uncertainty; a comment that did nothing to help the ailing US$. This stock gain, and the highest ever weekly and monthly close on the NASDAQ, came despite the print of the worst US GDP since the 1940s and so it will be interesting to see how this week’s NFP data plays out and what impact it might have on market sentiment and these instruments testing their multi year year trend lines. One has to wonder if a growing batch of negative economic data prints might start to give the markets some pause! The Nobel prize winning economist, Paul Krugman, certainly believes so.

 

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:  Articles published during the week can be found here, here, here, and here:

 

  • EUR/USD: a TL b/ above 1.166 for 240 pips but the move is up around 540 pips from the previous multi-week Flag pattern:
  • GBP/USD: a TL b/ above 1.28 for 360 pips.
  • AUD/USD: a TL b/ above 0.71 for 100 pips
  • Gold: the previous channel b/o continued for up to $160:

 

 

  • This Week: (click on images to enlarge):
    • DXY: US$ Index: The US$ index closed with a bearish weekly candle and is resting down at a major 10-year support trend line. This will be the level to watch for any new make or break BUT note the developing bearish momentum. Any failure to hold above this support trend line would bring the 85 region into focus. As noted last week, price action has held above this support trend line numerous times before though so caution is needed at this major level; especially with this week’s NFP release. A more detailed report on the FX Indices can be found through this link.

 

DXY weekly: 

 

    • Gold: Gold is trading at all time Highs and just under $2,000 USD. I wrote an in-depth article on Gold on Friday and it is available through this link.

 

    • Central Bank updates: the RBA (AUD) and BoE (GBP) report rate updates this week.

 

    • Copper: Copper is often viewed as one metric of economic health and it closed with its third consecutive bearish-coloured Spinning Top weekly 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: 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. The DXY will be in particular focus, especially ahead of this week’s NFP release, as this will impact all of the others.

 

    • 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 developing weakness on the USD and strength on the EUR and GBP!

Currency Strength Indicator (daily): 

 

 

    • 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; even if 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 bearish-coloured Doji weekly candle reflecting indecision but a bullish monthly candle as the index holds above the key 25,000 S/R region. Watch for any new momentum-based weekly triangle breakout:

 

DJIA weekly: 

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with bullish weekly and monthly candles as price action holds above the 10,000 level. The index has now printed its highest ever weekly and monthly candle close. Watch for any potential Bull Flag:

 

NASDAQ weekly: 

 

 

    • DAX weekly: The DAX closed with a bearish weekly candle as investors weigh up earnings against concern for the global economy:

 

DAX weekly:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and closed with bullish-coloured Spinning Top weekly and monthly candles reflecting indecision. Watch for any new trend line breakout:

 

RUT weekly:

 

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a 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-coloured Spinning Top weekly style candle reflecting indecision. 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: Keep abreast of Covid and China news but watch, also, for any impact from Friday’s NFP:

 

 

 

Earnings: Courtesy of Earnings Whispers: Watch for impact from Earnings as some more big tech names report this week:

 

 

 

Market Analysis:

 

S&P500: The S&P500 closed with bullish-colored weekly and monthly candles despite ongoing concern with the economic impact of Covid-19. Trading volume still remains low and below the 200-Moving Average line so watch for any breakout here.

 

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

 

 

Price action remains range-bound between 3,200 and 3,300 so watch these levels for any new make or break.

Bullish targets: any bullish 4hr chart hold break above 3,300 would bring the previous all-time High, near 3,400, into focus.

Bearish targets: any bearish 4hr chart break below the support trend line would bring 3,200 into focus followed 3,100 and 3,000.

  • Watch 3,200 and 3,300 for any new make or break:

 

 

 

ASX-200: XJO: The ASX-200 closed with a bearish-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. The point to note this week, however, is that the index closed below the 6,000 level. Trading Volume, whilst higher than last week, remains relatively low though so keep watch for any new Volume trend line breakout.

 

XJO weekly: trading Volume was a bit higher last week BUT remains below the bear trend line:

 

The 6,000 level remains the S/R level 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 6,000 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 triangle breakout would bring 5,750 S/R, then the 11-yr trend line support into focus followed by the 5,000 level.

  • Watch the 6,000 S/R level and for any new 4hr chart triangle breakout:

 

 

 

Gold: Gold closed with bullish weekly and monthly candles and has closed the month above the key $1,900 level. The bigger $2,000 figure is just above now and is offering some resistance but I still think the $1,900 is the level to watch for any new significant 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 $1,900 level carefully especially as the US$ index is struggling at a 10-year support trend line:

  • any break of US$ support could help send Gold much higher.
  • any recovery above this US$ support trend line could keep Gold range-bound. However, this would only help to further develop the Inverse H&S pattern.

Bullish targets: any bullish 4hr chart break above $2,000 would bring the $2,700 target into focus.

Bearish targets: any bearish 4hr chart break of the support trend line would bring $1,900 back into focus.

  • Watch $2,000, $1,900 and the support trend line for any new make or break;

 

 

 

Oil: Very little has changed here over the last month such that a small, bullish-coloured Spinning Top candle was printed on the monthly chart and a bearish one was printed on the weekly chart.

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 $41.50 and the daily 200 EMA would bring $42 into focus on the way up to the $50 S/R region.

Bearish targets: any bearish retreat from $41.50 would bring $40 and $35 followed by $30 and $20 and, then, the recent Low, near $6.50, into focus.

  • Watch the $41.50 level and the daily 200 EMA for any continued daily chart triangle breakout:

 

 

 

EUR/USD: I had warned three weeks ago to watch for any bullish bias on the EUR/USD and this suggestion has continued to deliver: the bullish breakout from the daily chart’s Cup ‘n’ Handle pattern has given around 500 pips of the projected 700 pip move.

The EUR/USD closed with bullish weekly and monthly candles, but, even more interesting is the fact that price action has now made a monthly candle close above the 13-year bear trend line which I have been warning traders to monitor. This is a major S/R level for the EUR/USD but it may not be given up easily and so traders should watch for any potential choppiness around this contested zone; especially in the lead up to this week’s NFP release.

Price action closed back down near this 13-year bear trend line so this is the level to watch for any new make or break.

Bullish targets: Any continued bullish daily chart Cup ‘n’ Handle breakout above the 13-year bear trend line would bring whole-number levels on the way up to the previous weekly chart High, circa 1.26, into focus.

Bearish targets: Any retreat from the 13-year bear trend line would bring 1.17 into focus as this is near the 4hr chart’s support trend line. After that watch for whole-numbers on the way down to 1.12 S/R.

  • Watch the 13-year bear trend line for any new make or break:

 

 

AUD/USD: The Aussie closed with bullish-coloured weekly and monthly candles and has now made a monthly chart breakout from the bullish-reversal Descending Wedge.  Traders will need to watch for any test of this major breakout zone before any potential continuation as these resistance levels aren’t often given up easily; especially in the lead up to this week’s RBA rate update and NFP release. 

There are revised 4hr chart trend lines to watch for any momentum breakout.

Bullish targets: Any bullish bounce up from the 4hr chart support trend line would bring 0.72, followed by whole-number levels on the way up 0.90, into focus.

Bearish targets: Any bearish 4hr chart break of the support trend line would bring 0.71 into focus followed by 0.70 and 0.69 and, then, the 9-11 year bear trend line.

  • Watch the 4hr chart support trend line for any new make or break; especially with this week’s RBA rate update and NFP release.

 

 

 

AUD/JPY:  The AUD/JPY closed with bullish-coloured indecision-style Spinning Top weekly and monthly candles but above the key 75 level keeping this the region to keep watch for any new make or break.

The AUD/JPY is trading just above the revised multi-month support trend line so watch this, and the 4hr chart triangle, for any breakout.

Bullish targets: Any bullish 4hr chart triangle breakout would bring the 76 and 77 whole-number levels on the way up to the 7-year bear trend line and 78 S/R into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring the 75, 74 and 73 S/R levels back into focus.

  • Watch 75 S/R and for any 4hr chart triangle breakout; especially with this week’s RBA rate update and NFP release.

 

 

 

NZD/USD: The Kiwi closed with a bullish monthly candle but a bearish coloured Doji weekly candle with the latter reflecting indecision as price action trades above the recently broken resistance of the 7-year bear trend line. As with the EUR/USD and AUD/USD, this is a major S/R level for the NZD/USD but it may not be given up easily and so traders should watch for any potential choppiness around this contested zone; especially in the lead up to this week’s NZD Unemployment data and NFP release.

Price action pulled back after testing the 0.67 level so this is the upper region to monitor in coming sessions.

Bullish targets: Any bullish breakout above 0.67 would bring 0.70 S/R into focus.

Bearish targets: Any bearish 4hr chart break back below the recent support trend line would bring the 7-year bear trend line into focus and this intersects with the weekly chart’s support trend line.

  • Watch the 7 yr bear trend line and 0.67 level for any new 4hr chart momentum-based trend line breakout; especially with this week’s NZD Unemployment data and NFP release.

 

 

 

GBP/USD:  The GBP/USD closed with large, bullish weekly and monthly candles and has now extended 500+ pips following last week’s triangle breakout.

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 confirm this bullish monthly chart pattern.

Price action closed just below the weekly 200 EMA so watch this level for any new breakout with any bullish continuation move. The recent High, circa 1.35, looks like a good target for this latest bullish run.

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 of the support trend line would bring 1.30 S/R into focus followed by whole-number levels on the way down to 1.26.

  • Watch the weekly 200 EMA for any continued triangle breakout; especially with this week’s BoE rate update and NFP release.

 

 

 

USD/JPY: The USD/JPY closed with a bearish-colored Doji weekly candle reflecting indecision. Price action fell to start the week but recovered on Friday to near the 61.8% Fibonacci of the 4hr chart which will be the level to watch for any new make or break.

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 break above the 4hr chart 61.8% Fibonacci would bring the wedge trend line into focus.

Bearish targets: Any bearish respect of the 4hr chart 61.8% Fibonacci would bring the monthly 200 EMA followed by 105 back into focus.

  • Watch the 4hr chart 61.8% Fibonacci for any new make or break.