Chart patterns suggest that dollar/yen has a high probability of retesting the lower edge of the trading channel near 95. » Read More
The trend breakout in NYMEX oil, first signaled by the Guppy Multiple Moving Average indicator (GMMA), has been confirmed. This is a significant trend change. Oil established a pattern of longer-term trend reversal with price oscillation around the $38 level, which formed a base for the rally to the next resistance level near $48. The next upside target is near $58.
Two barrier features on the chart acted to slow the rally from developing into a trend change.
The first resistance feature is the historical resistance level near $48. This resistance feature was strengthened by the proximity to the upper edge of the long-term GMMA which is also near $48 when the rebound rally commenced.
Both of these barriers have now been overcome. The upper edge of the long-term GMMA fell to near $46 and price has now moved above this level. Price has also moved above $48. Traders are now watching for a retest of these two resistance features to act as support features for any retreat.
The weekly dollar index chart shows several interesting patterns. These set up the trigger points for a breakout to new dollar strength, or a breakdown for new dollar weakness. On balance, the bias is towards renewed dollar strength.
The first key feature on the chart are the support and resistance levels. Combined, these provide a very broad trading band. The support level is near $0.93 that was tested multiple times in 2015. The dollar index has dipped below this briefly, but usually rebounded quickly from this support level.
The resistance level is near $100.005 This level was tested twice in 2015. It's not a well-tested level, so it leaves open the potential for the dollar to strengthen considerably.
The second key feature is the down-sloping trend channel. For most of 2016, the index has moved between these sloping support and resistance lines. It has been a pattern of rally and retreat. The current rally faces trend line resistance near $0.96.
Japanese Prime Minister Shinzo Abe needs more than three arrows to make progress with the dollar-yen.
This currency pair is doing a five step polka. Unfortunately, all the steps lead to a potential downside target of 100, which is great for short-side traders but not so encouraging for Abe.
The steps in the dance are created by well-defined trading bands. Every time the lower edge of the trading band is broken, the market moves quickly to the next, lower step. The dance is currently between 105 and 109 but a fall below 105 puts the next support level near 100.
Long-term analysis of the dollar-yen chart shows that the dollar-yen moves within well-defined trading bands. The lower edge of the upper trading band is near 117. A fall below this step 1 level in February set an immediate downside target near 113, which was rapidly reached in a single downwards move. Weak consolidation at this level was step 2 of the dance.
The base of step 3 had a downside target near 109 but historically this is a weak level so during the dollar-yen's rise this level offered little resistance. It's a minor point historically, so there was a high probability it wouldn't offer good support in the current fall, which proved to be the case.
The euro/yen pair continues relentlessly and inevitably towards 120.
The addition to the chart is the upper trend line which is now acting as a resistance level. When this is combined with the lower trend line, this creates a "falling wedge" pattern.
A "falling wedge" is an elongated triangle that slopes downwards with the price rebounding lower between two converging trend lines. It is usually found in uptrends as a continuation pattern that slopes against the prevailing trend.
Sometimes, the "falling wedge" may materialize near the end of a prolonged downtrend where it can act as a reversal pattern. This suggests a longer-term bullish breakout for euro/yen but in the immediate short-term, the support target is near 120.
If the "falling wedge" pattern is projected forward then the intersection point of the wedge is near 112. The strength of the 120 support level suggests traders will watch for a rebound around July 2016. A rebound above 124.5 is a strong bullish signal and confirms the falling wedge breakout. The initial breakout upside target is near 127.
The breakout faces well established resistance levels created by a legacy of trading bands. The euro/yen moves between these trading bands using them alternatively as support and resistance levels. The 127 level is a well-established level and is will act as a resistance level.
There are three key features to look out for in this breakout in the gold price, which also happens to confirm our analysis back in February.
The first and most important feature on this chart is the breakout from the fan trend line pattern.
The second feature is the breakout confirmation from the Guppy Multiple Moving Average (GMMA) relationships; the long-term group has compressed and turned decisively upwards.
The third feature is the way price has remained above the critical resistance level near $1,200, using it instead as support point.
Gold is a proxy for the entire commodity complex and we see this behavior reflected in oil and silver charts.
The upside target for gold is now the historical resistance level near $1,340. This is the short-term target and the fan trend line breakout behavior suggests it could be hit quickly.
The Dow Jones industrial average offers rally-and-retreat trading opportunities between 16,000 points and 18,290, chart analysis shows.
Between March and May 2015 the DOW hit resistance near 18,290, developing a shallow rounding top pattern before plummeting in August.
The retreat then reached the rounding top pattern target near 16,000 and stabilized in this area, before a rally in October reached 18,000. It then retreated again, retesting the support level near 16,000.
This rally-and-retreat behavior has created a broad trading band between 16,000 and 18,290, which in turn sets up three different development scenarios for the Dow.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.