Hawkish tone from the FOMC minutes boosted the Dollar last week against most major currencies.
The Dollar Index is now inches away from its 200 weeks MA line, which will probably be tested as resistance in the coming days/weeks.
The next milestone for the Fed is June’s FOMC meeting (13/6/18), in which the Fed is planned to raise rates once again.
Will the U.S data support the Fed’s hawkishness towards the next FOMC meeting?
The speculations will start this week with GDP and the U.S jobs report.
Economists expect a strong jobs report and a bounce in Average Hourly Earnings (expected to rise back to 0.3%). DXY’s bearish setup, described in the analysis section below, suggests maybe otherwise.
As for stocks, while short-term volatility has risen in the last couple of weeks, SPX has moved without any clear direction.
The S&P500 continues to generate bullish technical signs but over the last two weeks, it has done nothing but consolidating between 2700 and the final target zone of bullish setup that was shared here, in the Weekly Markets Analysis, on March – 2750-2760.
In the analysis section below you’ll find an update on SPX’s chart analysis and also a new analysis for the Nasdaq (NAS100).
On Thursday and Friday, world economic leaders will meet in Canada as part of the G7 meeting.
Headlines from G7 meetings most often create waves in the markets, so perhaps some of the trading scenarios described below may become relevant towards the end of the trading week with the G7 news and NFP.
Key Global Economics Events and Data this week
NZD – Financial Stability report, Business Confidence, and RBNZ Gov. Speech
Rate decision in Canada
U.S – GDP, and Jobs
Dollar Index (DXY) analysis
As mentioned above, the Dollar Index continued to climb in recent weeks and it is now approaching the 200 weeks MA line from below:
The 200 weeks MA line (near 95) should act as resistance if and when DXY’s price will touch it.
In addition to this critical technical line we also see a bearish harmonic trading pattern that should also be in focus:
On its way up, DXY has formed a bearish Bat pattern with a PRZ (Potential Reversal Zone) between 94.4 and 95.2.
The combination of the bearish Bat pattern and the 200 weeks MA line create a resistance zone between 94.5-95.5 that you should focus on in the near term future – A potential Sell Zone if you wish.
In order to trade this bearish trading scenario, first, you need to recognize weakness signs inside the Bat’s PRZ.
If the Dollar will show signs of weakness inside the PRZ, the next step will be to find short term reversal patterns that will give you a reason to try and short the Dollar with stop loss above the 200 week’s MA line.
In case of a reversal in DXY, one pair that may be interesting to trade is EURUSD:
EURUSD has formed a bullish Bat pattern near 1.165 and the lower end of the PRZ is near 1.155.
A bullish reversal inside the PRZ and a close back up above the daily structure zone can give you a reason to try and go long EURUSD.
Stop loss, for swing traders, should probably be placed below 1.15 – That way you’ll also be “protected” by a weekly uptrend line.
Unlike EURUSD’s price that still holds support, GBPUSD’s slide accelerates:
Last week, GBPUSD’s price broke below another weekly supporting element – The 50 weeks MA line.
The next weekly support zone is way down below, near 1.3, which has the top of the falling channel that GBPUSD broke out from on January 2018.
The question and dilemma that I have here is – how does this bearish outlook for GBPUSD correlate with the potential bearish scenario shown above for DXY?
If the Dollar will turn and fall, GBPUSD should probably rise… right?
Well, although I wouldn’t choose GBPUSD as my counter Dollar trade, there’s a bullish scenario that might work in case of a strong reversal in DXY:
Near 1.33 we see a daily structure zone that will try to hold the Cable’s price above it.
Relying a trade on a Structure Zone alone is considered to be a weak setup (according to my method), but if the Dollar will turn, it may work.
Personally, I prefer to see more supporting elements like patterns and Fibs and that is why I prefer to stay away from such weak setups.
In my opinion, If I want to trade against the Dollar, EURUSD presents a much opportunity (technically of course).
Still, if you want to trade the GBPUSD, focus on 1.33 and see how the price reacts to it.
GBPUSD will become interesting if it will continue to slide and reach 1.3.
Near 1.3 we will have 4 major technical reasons to try and buy the Cable:
- A Bullish harmonic trading pattern (Bat pattern)
- The top of a broken channel (should turn to support)
- 8 Fibonacci correction level of previous swing high
- A psychological level
Clearly, you see the difference between the Buy Zone that we have near 1.3 and the one described above, near 1.33.
For the last two weeks SPX has been consolidating between 2700 and 2740:
The Fast MA line (yellow linr) is approaching as support from below while from above we have the final target zone of my previous bullish trading scenario – 2750-2760 (the completion of a bearish Gartley).
Three technical facts support more upside potential for SPX:
- Recently closed above a daily downtrend line (red)
- The price is back up above all 3 MA lines
- SPX recently made a new higher high (closed above April’s high)
So is it safe to buy stocks again?
It is hard for me to call a stretched market safe, but technically the short-mid term signs are bullish.
2625-2650 has now turned into a strong daily price zone that should provide support in case of a bearish pullback so it seems like the odds of SPX hitting my target zone (2750-2760) are pretty high.
The question is – Will latest SPX bullish run stop there?
The Bull Flag that SPX has been forming in the last couple of weeks may suggest that the S&P500 aims even higher (2800 and 2870 are the next resistance zones).
Those who still want to short the index (or stocks) can use the short term trading scenario that the bearish harmonic trading pattern (Gartley pattern) offers.
The Potential Reversal Zone (PRZ) is pretty wide (typical in Gartley patterns) – 2750-2800.
If you want to trade the Gartley first wait for the price to reach 2750 and then seek for reversal patterns inside the PRZ.
If you want to short stocks, perhaps you should focus on ones that are represented by the Nasdaq:
The chart shows that the Nasdaq is testing the round psychological level 7000 again.
The KOD means – Kiss of Death – A set up that I usually use following false breakouts like we had in March 2018.
In addition to the KOD scenario, we also have a harmonic scenario that involves the same price zone:
NAS100 has formed a bearish Gartley pattern with a PRZ between 7000 and 7200.
Just like the S&P500, the Nasdaq is looking strong and you shouldn’t rule out the option that it will break above 7000 and continue higher… possibly to make a new record high.
As long as NAS100’s price is playing around the 7000 handle, you can try to play with the idea of shorting it, but if you recognize a breakout… don’t fight the market’s sentiment and the bullish trend.
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