Every four years the U.S. has a presidential election, but few have ever been as contentious as the one upon us. We are in the middle of a pandemic, economic recession, countless issues all over the world, a supreme court constitutional fight, and an election. Rarely have there been so many uncertainties at one time.
Last week showed us how these uncertainties can create "bipolar" risk market, where one day equity markets are down 1,000 and then finish the week basically at critical resistance/support. Our Short-Term Risk oscillator entered Friday in sever oversold territory and as we noted on Wednesday evening, a bounce occurred. Our Short-term Risk Oscillator is currently in Oversold reading and our long-term indicator is in Neutral reading.
We expect Monday to continue to bring an improvement across risk markets as a continuation from Friday. However, we expect the rest of the week to be very choppy as the U.S. awaits the Non-Farm Payroll number on Friday.
Let's look at some charts to identify some trades for the coming week.
DXY
The Dollar index broke to the upside last week and even continued on Friday as risk markets improved. This is rare. However, given the noted rising wedge above on the chart above, RSI hitting overbought readings and our long-term moving average overhead, we expect the DXY to slow down and possibly reverse lower to our short-term moving average (orange). Keep an eye on this index as its direction daily will have an effect on all markets across the board.
S&P500
The S&P500, we noted last week was looking like it had a double bottom form on Wednesday. In our chart, it is noted by the two red circle in price and the "W" formation on the RSI. This index has gone back into the bear flag channel. However, the flag pattern is taking to long to have a definitive break and the longer this sideways action persist, the more likely it will be invalidated and the markets will move up along with Risk.
AUD/JPY
After having 10 straight down days, this move in AUD/JPY is looking long in the tooth. We note above and oversold RSI along with a a hammer and inverted hammer on Thursday and Friday respectively. All three of these indicators lead us to believe the pair is ready to move up in some form of mean-reversion trade. We are currently long this pair.
CAD/JPY
We haven't covered this pair, CAD/JPY, in a while. This pair is unique because it very much a risk on/off play as well as an oil price proxy. As noted above it looks like we are forming a bear flag pattern. This could be because oil prices are hitting up against resistance, which is bearish for CAD, and the current uncertain environment is creating risk aversion. We are keeping an eye on this pair as it is sitting above a big channel from earlier this year while also trying to resolve this bear flag. If we break below that support line, it would resolve the flag pattern and most likely lead to the bottom of the previous range in the 75.00 area. Keep this one on watch for a break.
AUD/USD
Similar to the JPY cross above, AUD/USD has had multiple down days ended by a hammer and inverted hammer. If the DXY reverses as we expect, this pair is looking to move up into the 72.00 area fairly quickly where it would meet our short-term moving average line as a resistance.
GBP/AUD
We have noted for the past week that we believe this pair, GBP/AUD is a good short candidate. It is very close to proving us wrong. However, we note that the short-term moving average is still below the long-term average. We still expect this pair to reject and cause this pair to move lower. However, if this pair breaks 1.8200 to the upside, our short thesis is incorrect and invalidated.
NZD/USD
One of our favorite pairs. We were long this pair, NZD/USD all week and took a loss as it hit our stop loss at .6520. It is unfortunate because we still believe it will reverse higher with risk as well as a weaker U.S. Dollar. We will keep an eye and most likely look to enter a long position again. Stay tuned.
GBP/USD
This pair, GBP/USD looks like it is ready to move lower. While there is a great amount of indecision at current prices as noted above, BREXIT is the big factor on this pair. We are staying away from trading it at the moment, but expect it will move in lock-step with how the BREXIT negotiations continue. The more favorable they are to a deal, the price will move up. Conversely the more unfavorable the negotiations are viewed, the weaker this pair will get.
USD/CAD
As noted above, the USD/CAD are hitting up against our long-term moving average at resistance. We are not convinced it will break this line decisively. Notice the volume to the downside is heavier than the upside on the respective last four trading sessions. RSI is almost at overbought levels and the DXY looks like it might reverse lower. As a result we will be looking to go short this pair in the coming sessions as it bounces off resistance.
Thanks for reading and Happy Trading!
Comments