An earlier call on the dollar has not been realized so it is time to take a fresh look at the charts on the greenback, Daryl Guppy says. » Read More
The charts show that euro-yen enters a variation of a double-bottom pattern used to set a new long-term upside target. » Read More
Why does the Shanghai market rise and fall so rapidly? » Read More
How safe is the euro? That's tied to another question: Who will win the French presidential election? » Read More
The rebound rally in gold is well established with a move above $1,220. The upside target is near $1,290. It's good to see the gold uptrend continuing, but the upside target delivers 5.7 percent 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 and then at $21.00. The $18.75 level is the equivalent to the $1,290 resistance level on the gold chart. Since silver lags gold, its price is only just moving above the Traders ATR breakout line near $17.30.
A breakout at this level has target near $18.72. This trade offers a 8.3 percent return compared with a 5.7 percent return from gold for the same price behavior move.
Silver has a longer term upside target of $21.00. That's 16.6 percent from the current price near $18.00.
Silver is slower to move, but it has more room to move and that delivers better profits. Note the silver price is shown in cents.
Starting in January, the Australian dollar developed a strong rally. The rally has technical limits and two significant resistance features which may act to cap the rise and drive the Australia dollar into weakness.
When applying technical analysis indicators, it is important to know when not to apply a particular indicator. We use Guppy Multiple Moving Average indicator analysis to identify trend strength and changes. In these situations it is a powerful analysis tool. The Australian dollar chart does not have these features. Instead, the Australian dollar is confined by a long term sideways trading band starting in 2016 April.
This is a non-trending environment and GMMA analysis is not a useful analysis tool. Instead, analysis is better applied using support and resistance levels and trend lines.
The Australian dollar weekly chart has a well-defined resistance level near $0.775. The $0.77 to $0.775 resistance level has been tested 8 times in the past 10 months. There is a high probability this level will again act as a successful resistance level with the Australian dollar developing a rapid retreat.
A second resistance feature is the upsloping trend line. The anchor point for this trend line is the low of $0.68 in 2016 January. The second anchor point is the low of $0.715 in 2016 June. This trend line acted as a support level until November 2016 when the Australian dollar plunged to $0.73.
The dollar index rapidly rose to nearly $1.04 following President Donald Trump's confirmation.
It has fallen steadily since and is now re-testing the $1.005 support level. This rally, retreat and retest activity is often followed by a rebound rally. The potential for a rebound has increased in the run-up to the presidential inauguration day and the immediate policy announcements which will follow.
The weekly chart provides better guidance to the support and resistance features on the dollar Index chart. The dominant feature on the weekly dollar index chart is the broad trading band between $0.93 and $1.005.
This trading band has dominated dollar index behavior since January 2015. Support near $0.93 has been tested four times. resistance near $1.005 has been directly tested twice. Lower level resistance near $1.00 has been tested five times. The move above $1.0005 was very important because it's a breakout from this prolonged 22-month sideways trading pattern.
The breakout moved to near $1.04 and is retesting the $1.005 level as a support level. A successful retest of support confirms the strength of the breakout. Failure of the support level will see the dollar test the next support level. This support level is created by the uptrend line starting from the low near $0.92 in May 2016. The current value of this support trend line is near $0.975.
U.S. markets have been in a sustained uptrend since 2012. The election of President Trump has accelerated this trend in anticipation of a boost to the U.S. economy through proposed infrastructure spending.
But in truth, the U.S. economy has been growing steadily since 2012 although that wasn't enough to support oil prices which collapsed in mid-2014. The oil price did not reflect the U.S. economic expansion in this period. The price developed a recovery in 2016 but will this continue in 2017 or will the oil price fall again?
Chart analysis provides us with a methodology to understand market behaviour and set future targets. Chart analysis identifies trigger points which confirm when the market has taken significant steps towards meeting the new target conditions, or when the conditions have failed.
The long-term outlook for NYMEX oil remains bullish with initial targets at $58 and medium term targets near $68 and $72. These target levels are derived from two sets of chart features. They are: The long-term chart pattern and the history of support and resistance trading bands.
The first feature is the development of an inverted head and shoulder reversal pattern. This is a long-term trend reversal pattern that started in mid-2015 and which was confirmed towards the end of 2016. It is best seen on the weekly price chart.
The Nikkei 225 dropped quickly when the first announcement of Donald Trump's victory was in Asian trading on Nov. 9, following the U.S. election and set the tone for other world markets. The dip briefly retested the support level near 16,200 and then rallied quickly.
But the Nikkei has since resumed its breakout uptrend, highlighting two powerful breakout patterns.
The first pattern is the double bottom pattern. This is created by the low near 14,865 in 2016 February and again in June. This chart pattern is used to set a projected upside target near 20,347.
The double bottom pattern is also sometimes called a W pattern. The distance between the base of the pattern at 14,865 and the peak of the pattern near 17,613 is measured. This value is then projected upwards above the W peak to give the long term upside target. This target is near 20,347.
The breakout develops in two stages. The first target is a rebound from support near 14,865 to a peak of the W pattern near 17,613. This level was achieved and as expected there was some consolidation around this. The current breakout is moving towards the long term target near 20,347. The next minor consolidation band resistance level is near 19,000.
The US election is not as scary as some gold bugs imagined. After a fall, and rebound rally, the gold price resumed its downtrend. Weeks ago we asked who stole the gold? Now we know the answer.
We re-assess the extent of the damage and the now limited potential for recovery.
We start with damage assessment. The fall below the historical resistance and support level near $1,290 is critical.
The rally was a dead cat bounce, and yes, we were caught on the wrong side of it.
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.