Last week’s FOMC meeting didn’t provide any new information about the Fed’s tightening program and additional rate hikes before the end of the year.
The decisions were pushed forward to September.
But last week’s Fed meeting and the U.S GDP data did create two moves that we should pay attention to as we enter August:
- VIX – rallied from its All Times Low and closed above 10
- DXY – Bullish reaction and a short term rally from a weekly support zone (read more below)
In last week’s Weekly Markets Analysis video I’ve explained how the VIX in record low levels present contrarian trading opportunities despite the fact that we aren’t seeing any sign of weakness in SPX yet.
Although last week’s bounce in the VIX didn’t create the corresponding bearish move in S&P500 (only -0.12%), $SPY did form a weekly Doji pattern at the top of a weekly rising wedge pattern (see below).
Considering the VIX’s bounce, SPY’s Doji pattern, AMZN’s potential top (as published on TradingView) and the bearish harmonic patterns that I mention for XLF and XLK last week – I say that the bearish contrarian trading option on U.S stock markets is still very much relevant as we enter the August and the Summer vacation.
August’s illiquid markets have been fertile ground for the Bears in recent years.
Will the bears take advantage of the politicians and banks holiday to shake the markets again?
We will the answer to this question in less than 30 days.
The U.S Dollar finds support
It’s been three weeks now that I specifically mention the 93-94$ support zone as a potential Buy Zone in DXY.
During the first two weeks (since DXY broke below 96$) we had to wait for DXY’s price to reach the support zone.
Last week we finally saw DXY reacting to it.
The chart above shows how DXY bounced exactly from the PRZ of the bullish Bat pattern.
But that rally didn’t last long…
The short term relief rally ended when DXY reached the nearest minor resistance zone that included structure resistance, downtrend line and the MA lines (learn more about trading with MA lines) – The bearish trend is still alive and kicking.
DXY will continue to test the weekly support zone in the near future. Weekly reversals take time to mature.
Will jobs week be the savior of the Dollar?
As mentioned in last week’s newsletter, the potential reversal zone (…and potential Buy Zone) for DXY includes the 93-94$ support zone and the 200 weeks MA line that is approaching from below (near 92$).
Conservative traders should wait for a close above 94$ before going long Dollar.
Aggressive traders can try and trade intraday bullish reversal patterns inside the weekly Buy Zone – Like we did last week in the Elite Zone (see our winners)
EURUSD testing resistance
Just like the Dollar, EURUSD also reacted to a weekly Price Zone last week – The resistance zone between 1.17 and 1.19:
EURUSD reached August 2015 highs and it is approaching the next resistance level inside the resistance zone – The 200 weeks MA line.
The daily chart below shows EURUSD’s reaction to August 2015’s highs – A short term bearish move that was erased on Friday following the U.S GDP data:
Both DXY’s and EURUSD’s trends are still strong but they both reached price zones that allow us to consider counter trend trades.
To see a weekly reversal that will make EURUSD from a short term potential Sell to a long term bearish trading opportunity we need more – We need a strong intra-week bearish reversal that will translate to a weekly reversal pattern.
Right now it looks like EURUSD is determined to touch the 200 weeks MA line and test it as resistance.
1.17-1.18 remains the focus zone in EURUSD.
1.19 is the completion zone of a bearish Crab pattern (can be used for stop loss orders)
Nearest support zone – 1.16-1.165
GBPCAD – Long term bullish opportunity
I explained the Dollar’s situation above and how it can impact the Majors.
Although I only used EURUSD as an example, but you can also look at AUDUSD’s chart and see the same picture (see last week’s winner – AUDUSD).
So instead of showing more of the same (NZDUSD, GBPUSD etc…), I decided to use this week’s newsletter to show you some charts that I’ve been monitoring for the last couple of weeks – Charts of GBPCAD and a potential longer term opportunity I recognize in them:
The weekly chart shows us that GBPCAD is testing a weekly structure zone that acted as solid ceiling between June 2010 and September 2013.
For over 3 years GBPCAD simply couldn’t break above this structure zone.
That makes 1.6-1.65 a reliable technical Price Zone that we should pay attention to – A potential support zone (resistance turns to support).
We’ve already received the first bullish confirmation signal when GBPCAD rallied more than 1000 pips from this support zone all the way up to 1.75.
The rally ended when GBPCAD reached the Fast MA line in the monthly chart:
So far we know that 1.6-1.65 is a weekly support zone that can generated powerful moves, and we also know that GBPCAD is now testing it again.
Assuming that the weekly support zone will hold, we can consider the current bearish move as a correction wave and as the second wave in series of 5-7 bullish waves (Waves theory).
The problem is… It is a 500 pips wide Price Zone!
In order to find trading opportunities with reasonable risk we need to zoom into lower time frames:
The daily chart provides us with a potential reversal pattern – An Outside Bar pattern.
Outside Bars are patterns that come from the world of Price Action Trading (learn more).
The pattern that we see in GBPCAD’s chart suggests that if the price will break and close above the Outside Bar’s high, it will turn it to a bullish reversal pattern.
That means that a close above 1.645 can be a reason to go long GBPCAD with stop loss below 1.63.
That’s a 150 pips wide stop loss – A reasonable stop loss for a trade with a 300 pips potential profit.
Another way to trade potential upside move in GBPCAD is to zoom into intra-day charts and look for bullish signals.
The example above (4H chart) shows that a close of GBPCAD above 1.635 can trigger a long entry with stop below 1.63.
Now we are talking about a 50 pips wide stop loss…but the potential targets should be adjusted accordingly.
1.645 is the initial target zone (100 pips) and then you can set next target zone at 1.65 and 1.66.
The analysis above shows you a potential long term bullish opportunity on GBPCAD.
It relies on a weekly structure zone, Fibonacci levels (78.6-88.6) and a 1000 pips confirmation that we got not too long ago.
Above I provided two bullish trading scenarios that use time frames analysis to find better entries.
These specific scenarios suggest that if GBPCAD will turn from current levels, you should wait for bullish confirmation signals that will allow you to time your long entry.
These scenarios don’t rule out the option that GBPCAD will continue to dive deeper into its weekly resistance zone before its reversal.
In such case, simply look for other reversal patterns in lower time frames, just as I did in my examples, and use these patterns to try to trade the upside potential we see in the weekly chart.
Last week’s Social Media highlights
The Weekly Markets Analysis is THE newsletter that prepares you to your next trading week.
But the Market Zone’s content doesn’t end on Sundays.
Here are some examples of charts that I’ve posted last week:
#oil chart with new potential Sell Zone. Subscribe to my newsletter to read more about it next week. Link in bio @thezonestrader #technicalanalysis #trader #daytrader #swingtrader #stocks #forex #markets #financialmarkets #investing #invest #options #success #money #gold #Volatility #currencies #harmonicpattern #gartley #Forextrading #crudeoil #daytrading #swingtrading #tradingedge
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— marketzone (@themarketzone) July 27, 2017