Anyone with some experience would testify that the financial markets are rambling and complex by nature. There are a lot of predictable and unpredictable variables that move the market day in and day out and furthermore some markets (like the FX), trade around the clock nearly six days a week. ForexAnalytix is run by some of the sharpest trading minds in the market.
Gold is forming a bull flag above key support area.
Gold has spent the last couple of weeks consolidating its gains in what looks like a bull flag. As long as it is holding above the $1300 support / resistance area another push towards the 88.6% Fib at $1341 is a high probability scenario. We consider a daily close above $1316 to be a strong signal that the bullish scenario is in play.
The USDCHF rally has been very strong in the last several weeks from the beginning of the year, but the pair has ran into a wall of resistance at the multiyear trend line that spawns back from the end of 2016. In addition, the 88% retracement was also at the same area near 1.0080. A decisive move above the 1.0100 level could be quite bullish, but bulls near term should be careful.
Consolidation patterns, like a triangle, can be very explosive patterns when it comes to the markets because the market is “winding up” for so long. Once the breakout occurs, there usually is a catalyst that drives the market one direction or the other. In this case the USDMXN has been consolidating for the last 5 weeks and finally broke out higher. The reason was the weak industrial production numbers. This has allowed for the pair to stage a move above the 19.2000 resistance which now targets the 19.5678 level which is the 38% retracement.
The AUDJPY slumps to support following RBA Governor Lowe’s comments.
The AUDJPY fell aggressively overnight to channel support following RBA Governor Lowe’s comments about the path of the next rate move would be. This took the FX market by surprise following the RBA statement a day before. The pair found support ahead of the 78.00 level, but the risk is increasing that we break below it considering the long black bearish candle that was formed today. A move below the 77.00 level may be in the works now.
During the past few years there has been a good correlation between the Gold and CNH.
The Chinese Yuan has been a good proxy for US Dollar relative performance and risk on / risk off flows. As the Dollar strengthens, USDCNH naturally rises and vice versa. Gold, being an asset primarily denominated in USD, tends to follow short-term USD moves very well. A rising Dollar will cause Gold to see selling pressure, while a falling Dollar will support Gold. Furthermore, a rising Dollar often means rising US yields, and this is another reason for short-term weakness on precious metals. One of Gold’s most frequently criticised characteristics is that it offers no yield, and hence when interest rates rise there is a natural outflow from Gold into bonds and other fixed income products.
If we look at USDCNH vs XAUUSD, the inverse relationship is quite clear.
These two instruments are very closely knit and will be greatly affected by global geopolitical events. The US/China trade wars will drive the USD/CNH pair, as will the Trump administration’s internal and external policies. Furthermore, it’s always worth keeping an eye on economic data; leading indicators seem to have topped (Chinese manufacturing PMI in particular having contracted for two months in a row), and monetary & fiscal policies will be very important going forward.
The Basic Technical Analysis Perspective
The DXY has rallied off some key support in recent days. The 200dma and year long trend line both came into play at the end of last week and supported the recent triangle consolidation. At the same time, the divergent RSI that plagued the potential for the US Dollar to move higher has come back to neutral and reset. This may give the US Dollar free reign in breaking higher in the coming weeks ahead. In addition, the pullback in the US Dollar has been shallow to say the least.
Now compare this to the gold, which has had a significant bounce higher the last several months. Typically (as we have pointed out) the US Dollar and Gold have an inverse relationship. But as gold has been pushing higher, the US Dollar has not sold off too much. Now, gold looks like we may have seen a near term top above the $1320 level as the most recent rally has a very divergent RSI. In the event that gold pulls back further this could lead to a rally in the broad US Dollar index once again.
The Elliott Waves Theory Perspective
The USD has been weak lately, especially against the commodity currencies as Crude oil, stocks and even gold saw a nice move up since the start of this year. From my experience a lot of times when a market is extremely sharp and strong from the day one in January, it tends to slow down very quickly or even get reversed completely later within the same year.
Today, I want to look at GOLD in connection with USDCNH. As you know the USDCNH has been trading lower since November of 2018, but if you look closely you will notice that this is not a strong bearish trend but rather a sideways move; a slow and overlapping price action where bears are acting much weaker than bulls compared to the previous leg up from April of 2018. From an Elliott Wave perspective I see the current move down as a correction within uptrend; it’s complex one in seven swings that is already trying to find support at 6.70. A rise above the upper channel line will be a very bullish indicator pointing to much higher prices ahead, possibly even back above 7.0.
The question is what will gold do at the same time? Well, if we look at the correlation then we can clearly see that it is almost inverse. This means that the metal may find resistance if the USDCNH finds a low and starts moving higher from here.
In fact, the wave count on gold shows five waves up since December of 2018, so a pullback can be close and that should be in minimum three legs. Resistance for the metal is at $1330-$1335 area. If that proves to be the case then watch for Aussie weakness too, but maybe I will talk more about this one in our next article.
The EURCHF tests the 200dma and a lot of resistance overhead.
The EURCHF has had a nice bounce higher the last few weeks as the market attempts to carve out a longer term double bottom. However, the pair faces a lot of resistance from current prices to the 1.1500 level. First, the 200dma is near today’s highs. After that we have a strong resistance zone that held the pair most of 2018 as support and now acts as resistance. Plus the 38% retracement of the 2018 high to low comes in at the 1.1496 level as well.
The USDSEK has developed a bullish pennant pattern.
The USDSEK is not a currency pair that Forex Analytix commonly follows, but at times it is worth noting. Sometimes the USDSEK is viewed as a “Canary in the Coalmine” for the US Dollar index as it is contained in the basket of currencies included that make up the US Dollar Index (DXY). At the moment the pair is trading at the upper end (or downtrend line) of a bullish pennant, and a breakout higher may signal other US Dollar pairs may be ready to move as well.
The USDCAD is coming to some key support despite the break of the 200DMA.
The USDCAD will apparently close the week below the 200DMA. Most traders are noting the 200DMA break, but the 161% extension combined with the trend line coming in from Feb 2017 till now comes in at 1.3060 roughly which may offer the pair some near term support as it plays out a longer term bear flag pattern below the 1.3000 level.
The AUDUSD tests the 200dma on hopes of positive US and China trade talks.
Since the AUDUSD rallied from the late North American session selloff from a couple weeks back, the rally has stalled at the 200DMA. The rally has a lot to do with positioning and a “short squeeze” amid the hopes of constructive US and China trade talks but a break above this area will target the 0.74 previous high.
Following the FOMC decision, the US Dollar Index is at key support.
The US Dollar has given up ground today as the FOMC statement and press conference came off fairly dovish. This allowed the index to touch the 200DMA and also a longer term trend line that dates back to April 2018. A break of this support could spell longer term technical troubles for US Dollar bulls.