Despite some global economic and geopolitical warning signals and a mixed earnings season, the U.S stock market continues to climb.
Thanks to Trump tweets about the U.S China Trade Discussions and the Fed focusing on calming the markets, the S&P500 is now knocking on the 2800 handle in an attempt to break higher.
The aggressive bullish correction wave, that has started in mid-January, is now facing a strong weekly resistance zone (see below), and the question is – can it be pumped even higher?
The focus now shifts to Draghi that, despite his desire to end QE and raise rates, needs to take into considerations the fragileness and weakness of the Euro Zone.
In the Analysis Section below you will find my latest charts analysis and trading scenarios for EURUSD, the Dollar Index and the S&P500.
Economic Events in Focus this week
GDP in Australia
Rate decision in Canada
The monthly ECB meeting
See the complete weekly calendar in ForexFactory.com
As mentioned above, the S&P500 has been climbing since mid-January.
The chart below shows that SPX has been trading inside a rising channel since it broke out of the 2600 Resistance Zone:
SPX’s price is now back up above all the daily MA (Moving Averages) lines, including the 200 days MA line that didn’t even put up a fight against the S&P’s bullish move.
Now all these MA lines have turned to potential support lines.
So far, everything looks, feels, and even smells bullish…
But yesterday something has changed…
SPX, for the first time since mid-January, closed below the channel’s bottom (see chart below).
SPX was rejected for the third time by the 2800 Resistance Zone that included the 78.6 Fibonacci Level and a weekly structure zone.
The Bears used this rejection to storm in and push SPX’s price below the trading channel and below the MA lines (now potential resistance lines)
Not only that, but yesterday’s move also generated an Outside Bar pattern (see above) that can turn into a Reversal Pattern if SPX will close below the daily candle’s low (2770).
If you are in seek of bearish opportunities, there are two potential ways to try and short the S&P500 based on its current technical status:
- Use a re-test of the 2800 Resistance Zone (and the 4h MA lines) to find bearish patterns that will allow you to time your bearish entries.
- Wait for the price to close below 2770 and turn the Outside Bar to a potential reversal pattern – According to Price Action trading rules, your stop loss should be above the Outside Bar’s high.
Note that a close above 2820 will violate the bearish setup and perhaps hint that SPX will continue to climb towards its previous record highs.
In my previous analysis (back at the beginning of February) I mentioned that DXY is heading to complete a bearish pattern near 97.5.
Since then DXY has completed the pattern and reached both of the pattern’s target zones:
As you can see, DXY has formed a weekly Pinbar pattern last week, after hitting the secondary target zone, which was also near the 200 weeks MA line (support).
Now DXY is making its way back up towards 97.
It is interesting to see that during the whole up and down swing of DXY, EURUSD hardly moved.
Infect, instead of rallying while DXY had its downward move, EURUSD was pressed down by the sellers, to the bottom of its support zone:
As you can see, EURUSD continues to flirt with the support zone (includes 2 weekly MA lines and the bottom of the structure zone).
Although it looks like EURUSD is weak, things now depend on Draghi.
If Draghi will boost the EUR this Thursday, 1.13 can be an interesting Buy Zone that can be used to go long EURUSD (as long as it stays above support).
If Draghi will fail to boost investors confidence, about the Euro Zone’s future, EURUSD can break support and continue lower towards 1.1 and even lower.
Pay close attention to 1.13-1.135 this coming Thursday and based on the Price Action during/after the press conference, you should know how to act.