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The Dollar and Stocks gain from Trump’s Trade War

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The U.S Dollar and the U.S Equities Markets have shown, once again, that no matter what you’ll throw at them, they simply shake it off and continue forward.

SPX and DXY proudly started the Summer Vacation with new signs of strength and resilience.

 

Technically, since the last Weekly Markets Analysis, both DXY and SPX bounced from Support Zones:

 

SPX – Used the 2800 zone (turned to support) and the daily Fast MA line to rally back up towards 2850

weekly markets analysis

SPX – The price is heading towards previous record high

DXY – The Bulls save the Dollar from two breakdown attempts (near the bottom of the Triangle Pattern – the small uptrend line shown below):

weekly markets analysis

DXY – Testing the top of a Triangle Pattern

These failed breakdown attempts (DXY with the bottom of the Triangle and SPX with the MA line) were enough for the bulls to drive the SPX and DXY higher:

  • SPX rallied back towards its previous record high
  • DXY is back near the top of the Triangle pattern

 

It looks like both SPX and DXY want to climb higher – Here are some more technical signs that support this assumption:

weekly markets analysis

EURUSD – A bearish signal

The post-ECB bearish momentum in EURUSD continued last week and the Euro closed below a weekly uptrend line.

From a harmonic point of view, there’s a chance now that EURUSD’s price will continue lower towards the weekly structure zone (1.14-1.15), to complete a bullish Butterfly pattern.

The weekly chart below shows that if EURUSD will continue lower towards the Butterfly’s PRZ, it will also reach very close to the weekly 200 MA line:

weekly markets analysis

EURUSD – Weekly Chart

Since a bearish potential in EURUSD equals a bullish potential for DXY, the Euro’s technical situation right now support the option of an extended rally in the Dollar Index.

 

As for the S&P500, we can see bullish signs across the board such as another bounce from support in the Nasdaq’s chart (see below), and the strong rally that the Real Estate sector had last week, creating a new higher high in the daily time frame:

weekly markets analysis

NAS100 – 50 MA line acts a support

weekly markets analysis

IYR – Real Estate sector with a strong push higher

 

weekly markets analysis

IYR – New daily high

Trading Ideas – EURUSD

Basically, I’m not in favor of trading during the Summer Vacation Time.

The markets are thin and usually slow.

Those who try to day trade during this time period can get spiked out often due to the erratic nature of a thin market.

If you are still looking for action, here are the scenarios I see in EURUSD:

 

1.16-1.165 has now turned to a potential Resistance Zone in EURUSD.

If you want to short EURUSD, you should wait for it to pull back to the previous support zone (now should be resistance), and look for weakness signs or reversal patterns that will allow you to take a bearish trade.

If you are looking to buy EURUSD, my suggestion is to wait for it to either reach 1.14-1.145 to complete the bullish Bat, or to close back up above 1.17 and generate a false break signal.

 

Trump’s strength = American Strength?

There’s no doubt that the thing that catches investors attention during these slow summer days is Trump’s Tarrifs negotiations with China and the EU.

Despite fears that Trump’s Trade Wars with China and the EU will rattle the American markets, the results are showing the opposite (for now).

While the S&P500 and the Dollar Index are gaining strength, the EU markets and the Chinese markets are going in the opposite direction – Down.

FXI, an ETF the follows the Chinese Large Cap shows what happened to the Chinese market since Trump’s Tarrifs:

weekly markets analysis

FXI – Breaking below a weekly trend line

As you can see, the Tarrifs and the escalation of the Trade War formed a weekly double top in FXI.

FXI fell by more than 20% and, last month, the ETF gapped down and broke below a weekly uptrend line – Confirming the current weakness of the Chinese market.

 

It looks like the Chinese have found themselves vulnerable in the middle of the trade talks.

If they thought they will have a leverage over Trump and can threat the U.S economy with countermeasures, now it seems that they are in a position of weakness.

The trade war is damaging China much more than they damage the U.S.

In fact, it seems like the U.S is gaining global power from Trump’s action, despite all the criticism.

Will it last? Time will tell.

Notice that FXI is near a very strong weekly support zone.

The question is – If FXY will find support near the 40 handle, does it mean that:

  1. Both markets (U.S and China) will explode higher thanks to progress in the trade talks?
  2. The Chinese will retaliate with a weapon that will turn things around for them?

Interesting summer ahead…

 

 

 

 


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