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Trump boosts Year End Rally odds with tax cuts

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Trump scored his first legislative victory during the weekend when he managed to pass his tax reform plan in the Senate.

This historical tax reform has been received with enthusiasm by financial markets.

The S&P500 futures are in green and the Dollar Index (DXY) is back above 93.

In fact, early signs for today’s green opening were given last Friday when the S&P500 (and the Dollar) have made an impressive comeback towards the close.

weekly markets analysis

SPX on Friday – Bulls recover at the end of a volatile day

The next major economic event that the market will be waiting for is the Fed’s meeting next week.

Last week’s strong economic data did boost the odds of another rate hike (now standing on 90%!) but things can change if this week’s Jobs data will fall below expectations.

Pay close attention to the Average Hourly Earnings number, which is expected by analysts, to rise back to 0.3% after it printed 0% in the previous month.

It looks like Trump’s Tax Reforms Plan has set the stage for the Year End Rally and that the market is waiting for is a go-ahead from the Fed.

Key Events to monitor this week

Euro Zone meetings (Monday and Tuesday).

Two rate decisions (AUD and CAD)

Draghi’s speech (Thursday)

US jobs data (ADP and NFP)

UoM Consumer Sentiment that is touching levels seen before 2008 crisis (Friday)

See this week’s economic calendar

 

Dollar Index Analysis

As mentioned above, the Dollar Index opened the week in green.

DXY’s price bounced again from the 92.5 support zone (61.8 Fibonacci) and it is now back above 93:

weekly markets analysis

DXY – Holding above support

The approved Tax Reforms and the coming potential Rate Hike should boost the Dollar in the short term, but technically, buying the Dollar below such a Resistance Zone is still risky.

Stuck between support and resistance, the current technical situation doesn’t provide any real swing trading opportunities. That is why I’ve been advising my Elite Zone members to shift their focus these days from the Majors to the Crosses and we did find some good trades in EURGBP, GBPNZD and CHFJPY.

We need to see either a close above 94, to confirm the upside potential in DXY, or a close below 92 to break support.

weekly markets analysis

DXY – Weekly Chart

Key Price Zones:

First potential Buy Zone – The 61.8 Fibonacci Level and a Daily Structure Zone – 92.5-92.7

Second potential Buy Zone – The completion zone of a bullish harmonic trading pattern (Cypher) – near 92.

Potential Sell Zone – 93.5-94

Trading Scenarios (short term) are shown in the daily chart above.

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EURUSD analysis

The green opening of the Dollar has sent EURUSD’s price below a minor uptrend line:

weekly markets analysis

EURUSD – Breakdown of a minor uptrend line

The nearest support zone is 1.18-1.175.

It includes:

  • 2 daily MA lines
  • The weekly Fast MA line
  • The completion zone of a bullish Bat pattern (see above)
  • A daily structure zone
weekly markets analysis

EURUSD – Weekly Chart

Just like the Dollar, also EURUSD is stuck between support (1.175-1.18) and resistance (1.2)

You can try and trade this range as long as it is holding, or, as mentioned above, look for opportunities elsewhere.

Here’s one example of a trading scenario that I’ve recently shared with my Elite Zone members:

weekly markets analysis

EURAUD – Swing Trading Scenario

EURAUD is facing a weekly resistance zone that includes:

A weekly structure zone

A bearish harmonic trading pattern – Bearish Gartley

Last week EURAUD reached the potential Sell Zone and it has formed a weekly Pinbar.

That confirms that we have sellers near 1.57, and all that you need to do if you wish to try and trade this bearish setup and as long as the resistance zone continues to hold, is to zoom into lower time frames and time your bearish entry.

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SPX analysis

The S&P500 is in green this morning and it is attempting to break another record high:

weekly markets analysis

SPX – New Record High

SPX continues to violate one reversal pattern after another.

The recent one was the Broadening Top that I mentioned last week.

As I wrote last week on my Facebook Page – There will be no short on SPX without Banks.

Look at XLF:

WEEKLY MARKETS ANALYSIS

XLF – Financials Sector breaks out

The Financials Sector broke another resistance zone last week (violated an AB=CD pattern) and today Banks are leading the Indices higher.

With such strength demonstrated by the Financials Sector, it seems like Dow 25,000 can be reached in a matter of days.

Summary

The charts and the recent news support more upside from SPX and DXY.

SPX is constantly breaking record highs and there’s no historical reference that can be suggested as resistance.

A use of the Fibonacci extension tool can provide us with resistance zones that we can mark on our charts in order to find potential reversal zones, but clearly, SPX is still extremely strong and such levels are being broken one by one.

Being cautious with such a stretched market is understandable (and probably even recommended) but as long as SPX continues to create higher highs and higher lows there’s only one direction – Up.

The situation is different for the Dollar Index.

The Dollar Index, despite all the positive news, data and 2 rate hikes still struggles to find buyers.

Although it is still holding above the bottom of its yearly trading range, it still faces some tough resistance from above. It can easily break below support in case that the stream of positive data/news will stop.

In SPX we see that good news are good news, no news is good news and bad news have almost no impact.

In DXY that’s not the case.

So even if you think that the Dollar will rally based the recent news, keep an open mind and be prepared for any scenario.

Trade the Price – Not the news.

 

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