What’s Hot (and What’s Not) Besides GBPNZD
What a profitable week we’ve had again here at The Pattern Trader!
Before I get into a review of multiple currency pairs, let’s look at a current (and ongoing) winner so you can see just how powerful my pattern trading analysis can be.
The GBPNZD (the British pound against the New Zealand dollar) pair has been exceptional lately.
Back in early August, I noticed a double bottom and began predicting this was going much higher. As you can see from the email below on August 6th, I recommended that my subscribers buy on stop at 1.8672.
Since then, GBPNZD shot over the 2.0 level, soaring over 1,400 pips higher since this suggested trade recommendation went out.
Why was I so confident? The double bottom and the key reversal as GBPNZD exited that double bottom. Both are very bullish.
In a subsequent email, I recommended adding to the long positions at 1.8968. The price rose 1,100 pips since that email.
One more email on August 27th …
I told readers to buy on dips and we took profits of over 700 pips on just one of those positions.
Meanwhile, we've got an outstanding position showing over 800 pips and cumulatively I've taken out over 3,000 pips in this bull move starting from the first email I’ve shown you to start this Report.
I know for a fact that many members follow me into these trades and many hundreds of pips. I’ve drawn green arrows showing you some of the responses I received from members …
This was a fantastic response.
It’s why I do this. It gives me enormous satisfaction to help other traders learn to trade and grow their account balances.
But if the move over? Is GBPNZD finished?
No, it's not. But some patience is required now. This pair has already moved 2,000 pips in just a few weeks and it’s knocking on the door at resistance levels. That means we’ll likely see a lot of turbulence between current levels and 2.05. But based on the historical price patterns behind GBPNZD (which go all the way back to late 2016, early 2017 timeframe), I expect GBPNZD will continue to soar much higher over the next few weeks and months.
Here’s the weekly chart for GBPNZD:
With respect to the recent double bottom, we’ve only just reached the neckline.
And I expect a big move higher about a month or six weeks from now thanks to the outcome of the Brexit talks. This is a good indication of how the market is ahead of events. You can see based on the underlying price patterns that the expectation is for this market to go higher irrespective of the outcome of Brexit events.
I feel we could get another 1,000 or 1,500 pip move. But beware the volatility! There could be a 500 pip head fake going the other way first. Be careful with your entries, position sizes and stop losses and hang on for what could be a very wild ride to the upside.
Now let’s look at what else is happening in the forex world right now, starting with the U.S. Dollar Index (USDI) …
USDI is a measure of how the dollar’s performed against a half a dozen major currencies. And as you can see, it’s hovering near yearly highs with lots of support. Even with a bearish key reversal, there was no follow-through and so we’re looking at a consolidation pattern that should continue to the upside … eventually.
Now for EURUSD (the Euro against the dollar).
Over the last 10 years, EURUSD has dropped from 1.60 to 1.10. As part of this huge downtrend, we had an interim head & shoulders bear pattern where the price continued grinding lower in a channel after the neckline was broken. Ultimately, I expect EURUSD will test its 2016 or 2017 lows at around 1.04 and then parity with the dollar.
There’s more evidence of a stronger U.S. dollar when you look at AUDUSD (the Australian dollar against its U.S. counterpart) on a monthly chart:
Note the huge head and shoulders pattern here. After breaking the neckline of that pattern, there was a bounce and then a double top before the drop resumed. I expect we’ll see AUDUSD hitting its historic lows before this downtrend is over, which aligns well with my expectation that the U.S. dollar uptrend will continue.
For the past several years, I've been saying the New Zealand dollar (NZD) is the weakest currency on the board. Here I’m looking at the long-term NZDUSD chart going all the way back to 2011:
It looks a bit like AUDUSD but with a double top instead of a head and shoulders and a triple top in place of the double top. The results after cracking each neckline were the same and I expect to see NZDUSD under the 62 level and maybe even the 50 level before this is over.
NZD is going to go lower against most major currencies out there. You can short it against the Japanese yen (JPY) or the Canadian dollar (CAD) too.
A couple of weeks ago I believe we saw what's called a bull trap in the EURGBP pair (Euro against the British pound) where we broke above 91 and then quickly turned back to trap all the bullish traders that bought this over 91.
We also see major resistance above the 92 areas. And based on the price behavior since coming through this bull trap, it looks like we’re on a fast trajectory lower in EURGBP.
I recommended that my members short this and I see no reason to take off this trade yet. Again, this is yet more confirmation of just how strong GBP is right now.
Now let’s look at U.S. light crude oil. I think this chart is very instructive on how you cannot trade based on events or news. You probably know that Iran bombed the Saudi Arabia oil fuels and took out 5% of the world's oil production and the price soared about $10.
However, you can see that by the end of the week oil has settled back in the direction of the primary trend. I expected this as oil has been on a downtrend from $105 to the current price of $58. There’s been an interim double top to put a lid on last year’s rally too.
And despite fundamental “shock” last week, oil settled back in the direction of the trend to make the spike rally a bit of a bull trap. The price dropped right back to the descending triangle trendline and my expectation is that despite all the emotions surrounding this market, the oil price is headed for the neckline of this triangle and perhaps even lower.
Now let’s look at spot silver (XAGUSD).
I've always been a little bit suspicious of silver’s recent uptrend. That’s because the primary pattern is the bearish double top we see here. There are no distinct bottoming patterns, only price action consistent with a sideways channel with the next target being the bottom of the channel at $14 or thereabouts.
Spot gold (XAUUSD) is in a more ambiguous situation on this daily chart.
It's an open question whether this is just a consolidation within a long-running uptrend or whether the double top represents the end of this phase of the market. I’m prepared to wait and let the market tell me. A break above the double top will indicate the bull is ready to run again, whereas a drop-through $1,480 would indicate the opposite.
Right now we're trading between $1,500 support and $1,550 resistance so keep your emotions in check and just wait for the market to tell us which scenario is most likely to happen.
Another asset class I'm ambivalent about is the U.S. stock indexes. In this case, I'm looking at the S&P500 weekly chart and as you can see, we’re resting at an all-time high, right in the neighborhood of where we peaked before.
There’s also an inside bar lurking at the top of this most recent high. These small bars are NOT benign. They can turn into enormous reversal signals.
But in this case, I'm not so sure. This may be just a pause in this long-term bull market before the next leg higher, or it could force some sideways consolidation for a while, or it could set up a reversal.
The bottom line is that this narrow range bar is certainly an inflection point, a resistance point. These “coiling bars” precede huge volatility one way or another. But which way? I’m not sure what’s coming next and until I have a high level of confidence, I’m not ready to make a trade.
So here’s the summary for this week: GBPNZD is still a buy but be prepared for lots of volatility, the USD is likely to remain very strong, NZD is weak across the board, silver is bearish and both gold and the U.S. stock indices are very ambiguous right now.
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I wish you, I'm a healthy and happy and prosperous trading week.
Mark “GBPNZDRocket” Shawzin