Good afternoon team,
We are approaching a very interesting time on the charts. The surge overnight in global equities is raising a number of red flags. We are seeing a couple of potential topping formations across different Indices. The DXY is also setting up a possible bullish outlook.
DJT – Daily Charts
The Dow Jones Transportation index is showing higher highs printing on lower volume, also known as a bearish divergence. This indicates buyers are running out of momentum. The DJT is one of the leading indices in the US stock market. The weekly charts are also showing a couple of pin bar candle formations, which can occur prior to a pull back in the market.
DXY 1 Hour Charts
The DXY index is showing a possible inverted head and shoulders formation set up. The 89.80 support zone must hold. If the DXY strengthens from this zone we will see a risk-off scenario take place. The USD has had a perfect inverse correlation to the US stock market since the covid-19 pandemic recovery. A sharp rise in the USD will see a rotation out of equities and back into the safe-haven currency. Keep in mind markets are extremely bullish at the moment, there is no particular fundamental reason to sell. FREE money continues, Biden is going to “unite” America, Yellen and Powell will provide all the money the US Government will need to fight the pandemic and the vaccine rollout continues. This is when possible pullbacks in the market occur when there are no sellers left.
On the other hand, due to the endless money printing in the US, the cost of living is beginning to increase. The bond market is signalling an uptick in interest rates, which is bad news for equties. The FED has suggested they will leave interest rates at record lows for the foreseeable future. However, they may take a wait and see approach if CPI begins to rise rapidly. This will result in a rotation back into the USD as traders predict an interest rate hike sooner rather than later. When this exact scenario plays out is anyone guess, however with the current setup on the DXY, it appears there could be an opportunity tonight. If the inverse head and shoulders formation fails tonight, we may see a final push lower before a sharp correction.
Here are a couple of opportunities to keep a close eye on tonight.
EURUSD – 1 Hour Charts
The EURUSD broke down as highlighted in the previous EURUSD analysis, we are now trading on a key trend line resistance.
We are looking for a SELL opportunity here.
Trade Setup: SELL Market Execution, current price 1.2171, stop loss 1.2251 and take profit 1.2000.
Stop loss: 80 pips
Take profit: 171 pips
USDCAD – Daily Charts
We can see the USDCAD price action coiling up inside this falling wedge formation. Over the coming weeks, we see this being a large opportunity for traders. One possible trigger for a huge rally on the USDCAD would be a widespread lockdown in the US, if Joe Biden announces harsher restrictions, or if the vaccine does not get distributed fast enough, demand for crude may decrease whilst the safe-haven demand for the USD will increase. Additionally, the USD inflation play may provide a trigger on this setup.
We are not posting a position on this setup just yet, however long trades look favourable above 1.2797.
USDCHF – 4 Hour Charts
I would highly recommend not placing every USD long opportunity, pick one and execute well. The USDCHF is also showing a possible inverted head and shoulders play. The 0.8840 support could provide long opportunities, with targets being set near the 0.9000 resistance.
Lastly, a huge shout out to David, who is always coming through with the exceptional charts and information in the live chat!
This chart highlights the opportunity coming on the USD and US stock market in the weeks a head. Textbook rising and falling wedge formations can be found suggesting reversals are coming.
Have a great weekend, good luck with you’re trades!!