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The Dollar’s path to a bearish correction is set

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The developing trade war between the U.S-China and U.S-Euro Zone continue to have its effect on the U.S currency.

The Dollar has been quite volatile since the end of May, when it formed a bearish daily Bat pattern:

weekly markets analysis

DXY – Inside the PRZ of a bearish Bat


Since then, as you can see, the Dollar’s Bulls tried their best to break out of the PRZ (Potential Reversal Zone) and violate the bearish pattern – They have failed.

The latest rejection was last Friday.

The Dollar had a strong opening, knocked on the 95-95.5 resistance zone, got rejected by the sellers, and formed a bearish Pinbar pattern.

Although there are still few strong support levels from below, the price reaction to the bearish Bat’s PRZ leads to an assumption that the Dollar is heading for a correction that can drive DXY towards the 200 days MA line.

Such a correction wave in DXY can create opportunities in the Majors and in Gold.

Below you’ll find two trading scenarios that can be highly profitable in case of a bearish wave in the Dollar Index.

Also in the Analysis section below – SPX tries to break the 2800 handle as we dive into earnings. New All Time High coming?

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weekly markets analysis

Key Global Economics Events and Data this week

Fed Chair Powell Testifies

G20  meeting

Putin-Trump meeting

CPI in Canada, New Zealand, and England

See this week’s economic calendar

Dollar Index (DXY) analysis

Above I mentioned the bearish Bat’s PRZ and how DXY’s price is reacting to it.

Another thing to bear in mind, that it is not only the bearish Bat that should be in focus, it also the 200 weeks MA line that I’ve mentioned in my previous analysis:

weekly markets analysis

DXY – The 200 weeks MA line stays in focus

As long as DXY remains inside the PRZ and below the 200 weeks MA line, the odds of a correction wave are far greater than the odds of a bullish breakout.

That is why I continue to focus on bearish Dollar trades and that is why I’ve been including such trade scenarios in the weekly trading plan that I’ve been sending to my Elite Zone members in the recent weeks.

Last week we caught successful trades on NZDUSD, for example, and today I want to share with you two other trading scenarios that can benefit from a bearish wave in the Dollar Index.

EURUSD – Bullish Bat

If you’ve been reading the latest editions of the Weekly Markets Analysis, or if you follow the Market Zone on Social Media, you are probably familiar with the bullish Bat that we have in EURUSD:

weekly markets analysis

EURUSD – Bullish Bat

Just like DXY, EURUSD also has been moving inside a PRZ of a harmonic pattern in recent weeks.

Last week EURUSD finally climbed above the daily Fast MA line (a bullish sign).

The chart above shows the breakout that occurred on July 5th, and the technical confirmation that we got last Friday when EURUSD closed above the Fast MA line after an attempt to break below it again.

The intra-day reversal that we saw last Friday even generated a Pinbar pattern that can turn to a reversal pattern if we will see a bullish continuation move when the markets will open the trading week.

The first obstacle EURUSD will have to face is the 50 days MA line.

EURUSD’s price was rejected by this line last week and it looks like the buyer will have their second chance to break higher this week.

In case of a successful breakout, the path towards the 200 days MA line will be set, with 1.18 as a short term target zone for bullish swing trades.

This bullish scenario will remain valid as long as EURUSD stays above 1.16, but a close below 1.164 can be a warning signal so pay attention to that.

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XAUUSD bullish trading scenario

Gold usually has an inverse correlation with the Dollar.

Sometimes Gold can be affected by other global parameters, but in general, the Dollar and Gold move in opposite direction.

So…

If DXY is set to fall (still if…), then perhaps it is time to consider buying gold?

weekly markets analysis

XAUUSD – Testing weekly support

The weekly chart (above) shows that XAUUSD is testing a strong weekly support zone.

This support zone includes two critical elements:

  • The 200 weeks MA line
  • A weekly uptrend line

1230-1250 is the Price Zone in focus.

The daily chart below shows that the buyers have already started to pile some positions in Gold:

weekly markets analysis

XAUUSD – Bullish Bat

Two weeks ago we saw an initial rise in Gold’s price. It didn’t last long.

This short term rally met resistance when it touched the Fast MA line (an indication of a strong bearish trend).

But, last Friday, the buyers stepped in again, prevented a creation of a new lower low and the violation of a bullish Bat pattern that remained valid.

The nice thing about this trading scenario in Gold is the tight stop loss it requires, compares to the potential reward that we see.

Judging by the weekly chart, Gold can rally all the way up to 1300 before it will meet a significant weekly resistance.

Some of you might even say that the weekly uptrend will continue and that Gold can even generate a new high now that it has reached support of the uptrend line.

I can’t predict the future.

Long term I remain bullish Gold (based on the breakout of the weekly wedge).

For now, all I know is that my analysis shows a very strong weekly support zone that offers a great R/R for a bullish trade – I think that it is worth sharing and worth your attention.

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SPX analysis

The S&P500 tried to break the 2800 handle last Friday.

SPX closed an inch below the round 2800 handle (2799.6) but it has generated a new higher high and no doubt that stocks had another strong week following SPX’s bounce from the Fast MA line that I’ve mentioned in the previous newsletter.

weekly markets analysis

SPX continues the bullish momentum

2800 remains in focus this week as we have plenty of economic and political events that can influence and ruin the current bullish mode…

But if Earnings, Powell and the current bullish sentiment will continue to support SPX, we can see a re-test of the previous record high or maybe even new record highs in the coming weeks/months.

The short term scenarios are shown in the daily chart below:

weekly markets analysis

SPX – Daily chart and short term scenarios

Interesting to see that if you take the focus away from Indices and look at individual stocks, things don’t necessarily look that great.

Here’s JPM’s chart following its positive earnings report:

weekly markets analysis

JPM – Below resistance despite positive reports

JPM is still below a major daily resistance zone.

Some can look at this and say it’s a warning signal for the financial sector and a warning signal for stocks.

However, some can look at this and see a potential bullish flag – A breakout and a close above 110$ can lead to massive rally in JPM and potentially support the bullish scenarios in SPX.

Something for you to consider….

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Nasdaq Analysis

In my previous newsletter I mentioned that the Nasdaq was testing a critical support zone:

weekly markets analysis

NAS100 – Daily chart (from July 2nd)

As you can see below, despite all the latest news about Trump’s Traffis and Trade Wars and concerns about the U.S economy, stocks continued higher:

weekly markets analysis

NAS100 – Bounced from support

The Nasdaq bounced from the support zone, confirmed the bullish breakout and even reached very close to the first target zone (the upper trend line).

Question

Will you continue to trade stocks higher?

Do you think that the Nasdaq has the power to reach all the way up to 7800 to complete the bearish Crab pattern? (That probably means also SPX = 3000)

Or, do you think that the end of the current bullish run is near?

Write me an email and tell me what you think – tomerj@themarketzone.net

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