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Will Draghi boost the bullish sentiment today?

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In about couple of hours investors attention will shift to the ECB’s press conference and to its president – Mario Draghi.

With expectations that the ECB will keep rates as is, the question remains whether or not Draghi has another bunny that he can pull out of his hat?

Draghi has been very clear with his willingness to do more than what the ECB is currently doing to boost the EU economy. Does he have the tools?

With talks about a shift to fiscal stimulus, investors hopes for much more of the QE dose are pretty high so there’s definitely room for disappointment today – Draghi should better deliver.

Let’s see what the charts are showing us before October’s ECB meeting

EURUSD – Two harmonic patterns to monitor

Since the beginning of the week the EURUSD has been stuck below 1.1 – below a support zone and near the X point of its current bullish Gartley pattern (blue):

eurusd analysis

EURUSD testing the X point level

As mentioned in my Weekly Markets Analysis newsletters this week, there are few potential scenarios to monitor here:

  1. Bearish breakdown and continuation towards 1.08 to complete a bigger bullish pattern.
  2. Short term pullback (bullish) towards 1.11-1.12 and from there another bearish wave towards 1.08
  3. In case of a close above 1.12 – Potential rally towards 1.13 and 1.14

EURUSD’s chart looks more bearish than bullish for now. Out of the 3 trading scenarios mentioned above, the first two seem more reasonable to happen.

On the other hand, if Draghi will disappoint today – EURUSD bulls may look at it as a sign of weakness and use the 1.1 support zone to ignite a rally towards the top of the trading range – 1.14.

DAX – Near the completion of a bearish harmonic pattern

Since July, the DAX has been trading just below the completion zone of a bearish Gartley pattern:

DAX analysis

Harmonic pattern near completion

Three weeks ago a short term bearish pullback was responded by a strong support near 10,000 – As you can see the price created a bullish Pinbar after touching the structure zone and 2 weekly MA lines.

DAX analysis

Daily chart – German DAX

The daily chart shows us a small daily Triangle formation. The price is currently trying to break above the 10,700 resistance zone – The top of the Triangle pattern.

The fact that the DAX is creating higher high recently and that the price remains above the MA line suggests that chances are that we will see that breakout.

The breakout can lead the DAX to the PRZ of the bearish Gartley pattern (yellow) near 10,800-11,000 – The next potential Sell Zone.

Till that happens, the focus is on 10,700 – It is a proven resistance zone and it can drive the DAX lower, below 10,500, and cause a bearish breakdown of the Triangle pattern.

SPX – Fourth attempt to break into previous trading range

Since the breakdown of the 2140-2170 trading range SPX has been trying to climb back into it – It failed for three times now and today it is making its fourth attempt:

spx analysis

Fourth attempt to climb into previous trading range

The nearest resistance zone is 2140-2155. It includes the daily structure (the bottom of previous range) and the Fast MA line.

This zone will be tested during and after Draghi’s speech. Investors disappointment will send SPX on the highway to 2100.

Another price zone to pay attention to is 2160-2170.

A burst of QE hopes can send $SPX higher towards that zone to complete a 61.8 Fib correction move and to test the top of the trading range and the 50 days MA line.

FTSE – Floating below resistance

FTSE analysis

FTSE inside PRZ and below trading channel

The FTSE’s price has been consolidating inside the PRZ of a bearish Bat since the flash crash of the GBP.

The price is also testing the bottom of a weekly trading channel that was active between 2013 and 2015.

Such length of a trading channel usually means that its trend lines are highly reliable technical elements. Its bottom trend line acted as a support level for almost 2 years and therefore it should be respected as a solid resistance line now.

7100-7200 is the current resistance zone and potential Sell Zone in the FTSE. Only a close above 7200 (the X point of the bearish Bat) will violate this potential bearish scenario.

Summary

The three indices mentioned in this blog post show bearish potential towards ECB press conference today.

That means that if Draghi won’t deliver, sellers can strong the stock markets again and drive them lower.

If Draghi will deliver some statement that will boost investors confidence in central banks, it can drive the markets a bit higher but, as I explained above, the upside is limited:

  1. DAX near the completion of a bearish pattern
  2. FTSE is already inside the PRZ of a bearish pattern
  3. SPX is below the 50 MA line

The question is what will happen with the EURUSD if Draghi will fail to deliver what investors are waiting for.

Will we see EURUSD exploding higher from the PRZ of the bullish blue Gartley? Or will it be just a short term pullback that will allow the sellers to sell EURUSD from the 200 days MA line – continuation bearish trade with expectations that EURUSD will eventually reach 1.075-1.08 (completion of a the green Gartley)?

 

What do you think?

Share your thoughts with me – tomerj@themarketzone.net


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