January has been a positive month for U.S stocks and the U.S Dollar.
Stocks (S&P500) experienced a huge comeback following December’s sell-off – SPX rallied 200 points from 2450 to 2650 and it still looks more bullish than bearish (short term).
The VIX chart shows that despite some aggressive swings in the S&P500 (up and down), January was all about trying to calm the markets:
The Dollar Index (DXY) managed to climb from 95 to 96.5 but unlike the S&P500, it looks fragile as the Fed’s tone is starting to shift from Hawkish to Dovish.
Few interesting economic events will be in focus this week and have the potential to impact both global stocks and the FX market.
The most interesting event is probably the first Fed meeting in 2019 – If Powell will continue to step back from the Fed’s aggressive rate hikes policy and the hawkish tone, that can destroy the Dollar and perhaps boost stocks.
Read the analysis section below to find out which Price Zone are in focus this week for SPX, DXY, and AUDUSD.
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Economic Events In focus this week:
This week’s main economic events:
- May’s “Plan B” for Brexit (Speeches from ECB, BOE, Germany and more…)
- FOMC meeting, rate decision and press conference.
- S-China talks
- Jobs week
See this week’s full calendar on Forexfactory.com
As mentioned above, SPX had a very positive month so far.
SPX has settled above the 2600-2625 Support Zone and it looks like the next target is 2700:
The Fast MA line (Yellow) will act as resistance this week.
For SPX to continue higher, it will have to close above this Moving Average line.
Last week it failed to do so.
But, last week SPX did generate a bullish signal when it bounced from 2620 (twice) – Confirming the roles flip of this Price Zone (from resistance to support):
The daily chart suggests that as long as SPX stays above 2600-2620, good chances that we will see SPX continue to climb towards the 200 days MA line.
The weekly chart gives SPX a little more upside potential as the 50 weeks MA line is flat near the 2730 level.
Key Price Zones and Elements to focus on:
- Fast MA line (weekly) near 2650-2660 (resistance)
- Support Zone – 2600-2620
- Resistance Zone – 2700-2730
The Dollar Index was rejected by resistance last Friday.
DXY touched the 50 days MA line (resistance) and fell back below 96:
As you can see DXY’s price, following Friday’s sell-off, is now bellow to Moving Average lines – The Fast MA line (18) and the 50.
What currently holds DXY is the 200 weeks MA line (see weekly chart below):
Now everything depends on Powell and the Fed.
A Dovish tone from the Fed will probably drive DXY’s price below the 200 weeks MA line and end the pullback move that the Dollar experienced during the month of January.
In such a scenario, most likely that DXY will continue to fall towards 94.5 to complete a bullish harmonic pattern (Bat pattern) and to test the 50 weeks MA line as support.
If you are looking to go “Long Dollar” you want to see the Dollar Index staying above the 200 weeks MA line.
Another support line that maybe will have key role this week is the 200 days MA line (near 95.3) – DXY can dip down into this support zone, test it, generate a daily double bottom and jump back up to close above the 200 weeks MA line.
Technically, things look more bearish than bullish:
- Dollar Price reacting to resistance
- Lower highs and lower lows
- DXY below two daily MA lines
Even some of the Majors (like GBPUSD for example) generated interesting breakouts last week that highlighted the Dollar’s weakness…
But it all comes down to what Powell will say.
Now that you have the potential scenarios, you’ll know what to do.
One of the “Short Dollar” potential trading scenarios that I’ve marked for myself and my Elite Zone members last week was to buy the Aussie (AUDUSD):
AUDUSD has generated another weekly Pinbar last week when it spiked down to 0.708 and rallied back up above weekly support.
0.715 again is in focus this week.
If AUDUSD will hold above the 0.71-0.715 support zone, most likely that it will continue higher towards the next Resistance Zone – 0.73
Besides the weekly Pinbar, we also have a daily Price Action pattern that can be triggered as a reversal pattern if the price will close above 0.72 – Daily Outside Bar:
If you intend to try and trade this bullish trading scenario – Stop loss will have to be below last week’s low.
Notice that besides the Fed’s meeting (impact on USD) we also have AUD related events like CPI in Australia this week.
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