GBPNZD To The Moon (And How Price Leads The News)
As regular readers know, my trading philosophy is that price is ahead of the news. This week I’m offering further proof that this approach really does work and that you miss the best moves by waiting until the news is already out.
In this daily chart, I'm looking at the British pound against the New Zealand dollar (GBPNZD).
This week we had positive news out of the UK that the outcome of Brexit was likely to be friendlier than was earlier thought. GBPNZD surged 700 pips.
But here’s the thing: this is a great example of how price is ahead of the news because you can see that all the way back in early August, the market had already voted which way the Brexit discussions were likely to go.
That “vote” took the form of the double bottom price pattern which gave a strong indication the markets were ready to go higher.
In fact, the markets voted a long time ago on the UK’s prospects and the outcome of the Brexit discussions. Here’s an email I sent to thousands of subscribers in March 2017:
I was evaluating the prospects of an amazing turnaround in the GBPNZD currency pair. At that time I recommended buying at 1.7509 due to the double bottom price pattern on the weekly chart.
I also highlighted the key reversals at or near the 1.67 price level and said GBPNZD appeared to have formed a long-term bullish double bottom pattern on the weekly charts and was headed much higher from current levels.
Since that time, GBPNZD has risen from the low 1.70s the low one seventies. And this week, as you know, we went over 2.00. That’s 3,300 pips above were called the turn in 2017.
Now here’s an email that was sent to our daily Elite members on Tuesday, August 6 where I saw the turnaround at the 1.82 – 1.83 level:
I advised members to start piling into GBPNZD in the mid 1.80s based on the daily double bottom as it was so similar to the weekly double bottom we saw a couple years back.
But that wasn’t the only good entry point. In late August I sent another email to daily Elite members advising them to buy GBPNZD wherever they could above the 1.93 price level based on an inverted head and shoulders pattern.
The market soon soared to over 2.00 as I’ve revealed.
On October 10th on Thursday I sent another email, the text of which read:
“The market is a discounting mechanism. Price is ahead of the news and the best example of this philosophy has been the price action in GBPNZD based on the bull price patterns established several years ago. I've been predicting much higher prices and beginning in August before any known Brexit outcome GBPNZD began a massive 1,700 pip rally from 1.83 to over 2.00. In the past week ahead fake scared off the weak longs as the pair went from the 2.00 level back to 1.93 and then in a surprise announcement GBPNZD soared today amidst fresh hopes for a new Brexit deal. It's amazing how the news confirms the pre-established trend, not the other way around.”
Here’s the chart I sent with that email:
I also stated that GBPNZD was heading much higher thanks to the long-term bullish chart patterns and recommended buying at the 1.96 area. We closed 300 pips higher just one day later.
I hope that’s enough to persuade you of the usefulness of price patterns in predicting large moves in the markets.
Because there are a lot more opportunities out there than GBPNZD.
Let’s start with a look at the 42-year price history of the U.S. Dollar Index (USDI). USDI measures the U.S. dollar against a host of major currency pairs.
As you can see over the course of 42 years, USDI has formed a descending triangle and is currently trading at a major resistance line marked by lower highs. This is a critical inflection point, especially since we're forming a double top pattern too.
Will USDI break out of the descending triangle (even temporarily, as a head fake)? Or will it simply roll over and drop?
Let’s take a look at the weekly USDI chart for some clues:
There’s a reverse triangle and a small double top, plus some key reversals where the price made a new high and then closed on the low.
USDI is also at a major resistance area, the first of the two tops we saw on the 42-year chart just above.
I'm looking at the long-term support line for any puncture or penetration below it which could open up a waterfall effect for USDI.
If the U.S. dollar does turn lower, I think that it's most vulnerable against the British pound ironically enough since the pound was being written off just a couple of months ago. Former Prime Minister Theresa May was ousted, Boris Johnson came in, then the Parliament voted against him, and so on.
But you can see, the pound has been surging from a critical inflection area at the 1.80 – 2.00 level in recent weeks.
GBPUSD still has a long way to go. But we do have the makings of what could be a major bottom. I’m looking for GBPUSD to take out some critical levels above 1.32 – 1.34 a massive turnaround is confirmed. But the strong price action at or near major lows suggests that now is not the time to short GBPUSD.
Let’s look at USDJPY now (the dollar against the Japanese yen).
Right now USDJPY is trading in the middle of a descending triangle and I would not rule out a move higher within that triangle. There’s been a great deal of support at the 104 area but the descending triangle would have to be busted before I would re-evaluate my bearish stance on USDJPY.
In the meantime, I’m somewhat ambivalent on USDJPY and staying on the sidelines. Remember, you don't have to play every pattern and every trend.
For me, there’s no ambivalence about GBPNZD. That's where I'm putting my time, effort, focus and money right now.
I’m also looking closely at the precious metals, beginning with a monthly chart of spot silver (XAGUSD).
Just one month ago we saw a huge key reversal in the silver market where it went to the $19.50 area and then closed at or near the $17 level. That represents a dagger in the heart of the newborn silver bull market. We're most likely to trade sideways or revert to the long-term downtrend.
That’s because the driving pattern in silver the huge double top price pattern. That ceiling is unlikely to be surpassed in the near future.
Things don’t look any more bullish on the weekly XAGUSD chart either:
The price behavior is very negative. There were major key reversals when the market attempted to surge but was rebuffed and closed on the low of the week. That includes the small key reversal we saw last week.
As regular readers know, these key reversals usually point in the future direction of the market: down.
How does spot gold (XAUUSD) look in comparison?
Gold is a bit more ambivalent than the highly bearish chart for silver. But there are similar bearish signs.
We see the same kind of ominous and negative price action featuring key reversals at the $1,540 – $1,550 area and then most recently in the past week.
But that doesn’t mean the gold bull is dead. Markets don't just go straight up and then straight down. Gold may simply consolidate for a while before resuming its uptrend.
Conversely, it might break down from support and the bull is over … for now.
I’m more bearish than bullish due to the daily chart of XAUUSD:
The double top price pattern is problematic and now we’re also seeing a potential head and shoulders in this area as the price sits at the neckline. We could continue to play in this area for a while, but on balance, XAUUSD looks like it wants to go lower.
On the other hand, if gold instead looks like it’s digging in at that neckline and not behaving according to the pattern, then we have reason to believe the head and shoulders is busted and we should instead become bullish again.
Let’s finish off this week’s analysis with the S&P 500 stock index.
We recently had some positive trade news regarding the U.S. and China and the market rallied. But we've heard this story before and of course, I don’t trade on the news.
To me, the market is actually being controlled by the bullish key reversals whish suggest the market is going up in spite of what looks like a double top and overall resistance area. There wasn’t much follow-through on that double top at all.
Instead, the market is continuing to rise along its long-term trend line. And while we may see sideways action for a while, it seems to me that the path of least resistance looks to be onward and upward.
And that’s it for the week!
To summarize, I’m very bullish on GBPNZD, bullish on GBPUSD, on the sidelines for USDJPY (for now), and bearish on both silver and gold.
Mark “GBPNZDAheadOfTheNews” Shawzin