Charts suggest the People's Bank of China's move to cut rates will further boost an already-strong uptrend in the Shanghai Composite index.» Read More
Expectations that the Federal Reserve will hike interest rates in the first half of 2015 coupled with concerns about the health of the euro zone economy are weighing on the euro/dollar, but as key technical levels are achieved charts raise an important question: Are we looking at a breakout or a continuation of the downtrend?
When the euro/dollar fell below $1.34 at the beginning of September we set a down side target at $1.28. This was achieved and exceeded; the pair is currently testing $1.28 as a resistance level.
The euro/dollar has traded between two broad trading bands since September, 2012; the $1.34 level is in the middle of this trading band.
Japan's Nikkei had a huge day on Monday, surging 4 percent to stage its biggest rally in 16 months, as investors scooped up bargains after a rout last week caused a 5 percent slump in the index.
The market also rallied on news that Japan's Government Pension Investment Fund, the world's largest public pension fund with some $1.21 trillion in assets, is working on raising its portfolio allocation devoted to domestic stocks to around 25 percent.
But is the positive momentum for the market, which has lost some 10 percent since its year-to-date highs in September, here to stay?
Read MoreAre Japan stocks a bargain yet?
If the charts would have their way, the answer would be no.
The Nikkei is dominated by a series of historical support and resistance lines. The placement of these areas is calculated by projecting the width of the historical trading band. This method of trading band projection has been very useful in defining targets during the uptrend. It will also help define the support targets for any market retreat.
The critical lower level is 14000. This area was tested as support several times between February and May this year. The rebound comes off a fall towards this historical support level.
U.S. stocks on Monday fell for a third session, with the S&P 500 closing below its 200-day moving average and the Nasdaq Composite off 8.6 percent from its September record, leading traders to warn of a deeper correction, but charts suggest a potential buying opportunity.
The U.S. market has been running hot for months. It's a well-established and long-term sustainable trend propelled by 'funny money' available at virtually no interest. Fundamentally, its suspect, but technically this has been a trading opportunity not to be missed.
Nymex crude oil fell below $90 per barrel for the first time in 17 month last week amid signs of a supply glut, and charts suggest further downside.
Prices dropped amid signs that supply will outpace slowing demand from China and Europe. In September, the International Energy Agency (IEA) cut its 2015 oil demand forecast by 165,000 barrels per day. Meanwhile, the IEA forecast U.S. oil production to reach its highest level since 1970 next year, while Saudi Arabia, the world's biggest oil exporter, cut prices for its crude oil last week amid slack demand.
Nymex oil has been trading in a broad band between $88 and $110. The weekly chart shows an uptrend starting June 2012 – trend line A, which starts near $81. Trend line A connects the lows in November 2012 and the low in April 2013 – three anchor points for the uptrend line. The rebound in 2014 January confirms the position of trend line A, which is a steady, slow-moving uptrend.
Expectations that the Federal Reserve will raise interest rates in early 2015 coupled with growth headwinds in Europe have pushed the U.S. dollar index higher, but charts suggest that upside is limited.
The monthly U.S. dollar index chart puts the recent rally into a broader context.
From November 2011 to August 2014 the U.S. dollar index traded in a sideways consolidation band between $0.79 and $0.84. The width of this band is projected above long-term resistance near $0.84 to give an upside target near $0.89. There is a strong probability that the current rally will reach this target.
Chinese stocks stormed higher in recent months on the back of stronger economic data, easy monetary conditions and supportive policies from Beijing, recently touching an over one-year high, but charts indicate they may face a period of consolidation.
The Shanghai Index has developed a powerful rally that reached the longer-term targets near 2330 that we set several weeks ago. The pattern is very bullish; this is part of a long-term fan pattern trend-reversal breakout similar to the pattern in 2006. The typhoon flag pattern has been confirmed; the upper edge of the typhoon flag provides the first support level for a retreat from the resistance level upside target near 2330.
Current index activity is contained between the long-term resistance level near 2330 and the value of the upper edge of the typhoon flag pattern near 2278. There is a high probability the Shanghai index will retreat from resistance and consolidate between 2278 and 2330. This consolidation activity has the characteristics of an up-sloping triangle pattern. This is a bullish chart pattern.
Gold fell to its lowest level in nearly three months last week on concerns that a strong U.S. dollar and improving U.S. economy could damp demand, and silver charts suggest that bullion may not regain upward momentum anytime soon.
The downtrend in COMEX silver – shown in cents on the weekly chart – is well-established and prolonged. Technically silver is pounding out a support base near $18.70 and although there has been a reduction in downward momentum there is no technical or chart evidence of a developing rebound and reversal.
Upside targets remain limited, while technical downside targets have yet to be tested by a fall below support near $18.70. Analysis of Silver is useful because the price behavior of silver has led gold prices since 2011. Understanding silver gives traders a leading advantage when it comes to anticipating the behavior of gold.
The significant feature in the silver chart is the retreat and retest of the support level near $18.70. A successful fourth retest of support near $18.70 would confirm a long-term sideways consolidation.
Silver has strong long-term resistance near $26.00. Resistance also developed near $24.00, which is the first target for any successful breakout above the upper edge of the long-term group of moving averages where the value is currently near $21.80.
Charts suggest that the downtrend in the euro/dollar is firm ahead of the European Central Bank's (ECB) policy meeting on Thursday.
A decline in euro zone inflation to a five-year low in August amplified dovish comments by ECB president Mario Draghi at the Jackson Hole central bankers' meeting. Draghi acknowledged that inflation expectations have been falling at the August meeting and said the ECB, "within its mandate, will use all of the available instruments needed to ensure price stability over the medium term."
The developments fueled speculation that the ECB will consider easing action as early as Thursday with some analysts arguing that a quantitative easing – or bond buying – is on the horizon.
The Dow Jones Industrial Average posted its largest annual gain since 1995 last year and while momentum has slowed the index touched an all-time high in July and is up 3 percent year-to-date. Investors are questioning whether the rise has run its course but charts suggest the uptrend is intact.
The Dow's recent decline from 17,151 to 16,333 was only a minor retreat and is part of the trend consolidation pattern along the upper edge of a long-term trading channel. The index fell 4.8 percent; a technical correction is a fall of over 10 percent.
Read MoreAre Aussie dollar bears right?
Upward momentum has slowed a bit and consolidation is developing around the value of the uptrend line. There are two significant trend features on the Dow chart.
As the war of words between Australian dollar bears and bulls continues charts indicate that the bears may have the right call in the short term.
Comments from Reserve Bank of Australia (RBA) Governor Glenn Stevens late last year that he would like to see the AUD trading at $0.85 against the U.S. dollar raised expectations that it would weaken significantly this year after. However, expectations for continued loose monetary policy by global central banks and continued Chinese reserve diversification limited downside momentum.
Yet, growing expectations that the RBA may cut interest rates before year end to tackle the stubbornly high currency could see near-term downside.
The AUD is developing a long-term uptrend breakout pattern, but the breakout is not developing at this time. The weekly chart shows the classic Guppy Multiple Moving Average (GMMA) trend change breakout pattern. This starts with a test of the lower edge of the long-term group of averages in the GMMA Indicator. The breakout pattern is flowed by a retest of the upper edge of the long-term GMMA and completed with a breakout above the upper edge of the long-term GMMA. This signals the start of a new uptrend.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.