The potential for a rebound in the dollar has increased in the run-up to the presidential inauguration day. » Read More
The current downside target is $1,180. Failure to hold at this support level sets a target near $1,050. » Read More
The rebound rally in gold is well established with a move above $1,290. The upside target is near $1,350.
It's good to see the gold uptrend continuing but the upside target delivers only 4.65% profit. Rather than trade gold there are more effective and profitable ways to trade this rebound. Gold's companion, silver, has similar characteristics but offers a higher return for the same behavior.
Silver lags the gold price behavior. Silver has a resistance level near $18.75. This is the equivalent to the $1,290 resistance level on the gold chart. Silver lags gold so the silver price is only just moving above resistance near $18.75.
A breakout at this level has a target near $21.00. This trade offers a 12% return compared with a 4.65% return from gold for the same price behavior move.
Silver has a longer term upside target of $26.00. That's 36.8% from the current price near $19.00.
Silver is slower to move but it has more room to move and this delivers better profits. Note the silver price is shown in cents.
The first resistance level is near $18.70. This was decisively broken. The price tested the weak resistance level near $21.00 but then collapsed below support and tested support at the lower edge of the long-term GMMA.
The upward-sloping triangle pattern on the Aussie chart graphically illustrates the conflict between supply and demand for the currency.
The pattern is formed with a horizontal resistance level, which can considered as a measure of supply. Price fails to move above this resistance line as the supply of sellers overwhelms the demand from buyers.
The second part of the pattern is an upsloping trend line, which shows the changing levels of demand. The line slopes upward because buyers enter the market more aggressively to take positions as the price falls and, worried about missing out, they bid higher to get a position.
The result of these two influences is an upsloping trend line. In equity markets this is a powerful measure of crowd psychology. It has the same function in currency markets, but not quite a powerfully because many currency traders are forced to take the opposite side of their clients' transactions, irrespective of their view of the market direction.
However the pattern remains a strong predictor of upside breakouts. The depth of the base of the triangle is measured and this valu projected upwards above the resistance line to set an upside target. Again, this method is reliable with equities, but applied with caution in FX markets.
The Brexit and Janet Yellen's indecision on rates have been digested by the market. Now, the prospect of either a Donald Trump or Hillary Clinton victory in the U.S. election isn't seeming to induce any jitters in the dollar index.
The Brexit has proved more difficult and complex than imagined when Brits went to the polls, and the dramatic drop in the pound was evidence that the market was beginning to understand the consequences of the referendum decision. However, the drop in the pound was not matched by a dramatic rise in the dollar index.
It is inevitable that U.S. interest rates will rise but the timing remains a subject of speculation. But apart from some small, short-term gyrations, there is no substantial impact from Yellen's statements. The real surprise will be when decisiveness overrides indecision but the dollar index chart suggests this is not a high probability in the near future.
As a result, the dollar index will continue to trade within a well-defined trading band. The first key feature on the weekly chart is the support and resistance levels. The support level is near $0.93 and was tested multiple times in 2015 and most recently in May 2016, dipping below but quickly rebounding. This has been a defining support feature since late 2014.
Some patterns of price behavior repeat and we cannot explain why this happens. However the repeated pattern opens the way to profitable trades. The euro-dollar chart shows a pattern of trend collapse that puts the downside target near 1.05.
The weekly chart shows two parallel up-sloping trend lines the help define price activity between a very broad trading band. The lower edge of the trading band is near 1.05, while the upper edge is near 1.145. It's not unusual to see a pattern of rally and retreat between these types of trading bands.
What is different with the euro-dollar is the well-defined uptrend line. The first line defined price activity for 6 months. The break below the trend line moved quickly to rest support neat 1.05.
The second trend line is parallel to the first but this is coincidental. It's the nature of the price activity which is more important. The second trend line also lasted 6 months before the price dropped. The breakout was different with a rebound that used the trend line as a resistance point. The recent pullback towards 1.10 suggests that bearish pressure is building on the euro-dollar. A move below the recent and temporary support level near 1.09 will confirm this bearish pressure. If this develops, then traders will watch for a rapid retreat to near 1.05.
Who stole the gold? The yellow metal's dramatic fall from $1,340 to below $1,260 is a break-and-enter theft on a grand scale.
It's going to take a while to find out who stole these profits from open long positions. But what's more important is to assess the extent of the damage and the potential for recovery.
Let's start with damage assessment. The fall below the historical resistance and support level near $1,290 is critical. It would be reasonable to expect that this level would provide support for any retracement but instead gold fell straight through this level. Chalk one up for the bears.
The uptrend with gold was well defined using a Guppy Multiple Moving Average (GMMA) indicator. The long-term GMMA was well separated and this generally shows strong buying support from investors. The upper edge of the long term GMMA was a little above the historical support level near $1,290. The fall below the upper edge of the long-term GMMA is not good. Chalk another one up for the bears.
The outlook for oil prices remains bullish, both on the chart and in the economy.
World economies still run on oil. The U.S. economy may run on domestic shale oil, but China remains dependent upon imported oil.
West Texas oil sets the benchmark. The outlook for oil remains bullish, the chart confirmed with the reaction rally from near $38 and the retest of historical resistance near $48.
Three features have helped confirm the bullish outlook on the chart: the Guppy Multiple Moving Average relationships, the confirmed chart pattern and the history of support and resistance trading bands.
The first feature is the GMMA relationships, which are showing a classic breakout pattern.
The GMMA pattern of trend breakout consists of three parts: First is a rally that tests the value of the lower edge of the long term GMMA. This happened in June of 2015. The second part is a breakout above the upper edge of the long term GMMA. This developed in June of this year. The third part is a retest of the support levels followed by a rebound.
The short-term GMMA briefly dipped below the value of the long term GMMA. However, the price rebounded rapidly from the historical support level near $38. This behaviour confirmed the classic GMMA trend breakout pattern.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.