Hey there Trader,
What an interesting two weeks itâs been for pattern trading! And thatâs despite the dollar doldrums and some disappointment for precious metals bulls too.
Iâll get to whatâs hot in just a moment including some recommended trades. But first, letâs take a look to see just what happened (or rather, didnât happen) in the dollar this past week.
Last weekâs USDI (U.S. Dollar Index) trading action took us to the middle of the long-term trading range its been holding for some time now.
Yes, there was a bullish key reversal last week. And right now USDI is looking more strong than weak.
However, we need a move outside the channel to make a firm call here. Thatâs why Iâm not looking for a tradeable USD move at the moment. There doesnât look to be anything but a lot of largely meaningless back and forth action for now.
Things are similarly ambiguous for USDJPY (the dollar against the Japanese yen).
Iâm long term bearish on this pair based on the historic head and shoulders with a double top you can see here. That pattern represents an overhang on USDJPY.
The descending triangle weâve seen since has only confirmed that. (Weâve had several winning trades on the downside too, most recently during the December spike down.)
Since that long spike, weâve seen some sustained bull power in USDJPY. That descending triangle has been breached on the upside for the first time in a long while.
Iâm reserving judgement before turning bullish, though. Thatâs because when you look at the false breakout we saw last year, this could easily be another one. USDJPY needs to break through 114 before I would consider the bearish case finished.
That means thereâs lots of work to do between the current price and 114 even if JPY is looking a bit weak across the board right now. So staying on the sidelines is the best course of action for now. Iâm just observing the price action until we see a breakout past 114 or a confirmation (such as a bearish key reversal) that the current bearish case remains intact.
So where is the action?
The AUDUSD pair (Australian dollar against its American counterpart) is about the only dollar-related FX pair trade I like at the moment.
AUDUSD has been in a downtrend since 2015.
As part of that downtrend, the pronounced double top Iâve highlighted here has since marked another decline. Then another, smaller double top followed that. This one has a neckline around the 0.70 level and thatâs the price Iâm targeting for a short.
I think going short at 0.70 is even more compelling when you consider that last week was an inside bar. Remember, an inside bar represents a coiling of energy that will be released explosively at some point.
I think that movement will be down. In fact, any breakdown below 0.70 should lead to AUDUSD dropping for the next several weeks and months. Place a sell stop accordingly.
The British pound (GBP) is even more interesting, not so much against USD as against AUD and NZD (the New Zealand dollar).
âIn fact, the massive gains in GBP-correlated pairs (especially GBPNZD and GBPAUD) was one of the two most noteworthy actions last week. (Iâll get to the other later in this article.)
You might recall that beginning in mid-February, I alerted you to an impending move to the upside in GBP across the board. I donât say this to âtoot my own hornâ (although I admit Iâm quite satisfied by these early calls), but to re-affirm my abiding trading philosophy.
You see, I firmly believe that price is inherently a discounting mechanism. Price is ahead of events.Â
The bullish moves in GBP pairs were preceded by price patterns that occurred weeks, even years, before last weekâs massive gains. Price really does lead the news.
Hereâs my February 17 email and GBPAUD trade set-up analysis that went out prior to the recent price spikes:
Here you can see how the patterns I identified (the triple bottom, key reversals along a rising trendline, and finally an inside bar) ultimately laid the foundation for the explosive price action that subsequently took place.
That strong move is shown here in this updated GBPAUD chart:
The neckline of the triple bottom acted as support for a second triple bottom and prices rocketed to a multi-year high at 1.8642. (Yes, thatâs a 357 pip gain in just 2 weeks.)
Thereâs likely to be some resistance in the near term, but ultimately I believe GBPAUD will go even higher over the course of this year. I see both 1.98 and 2.06 as likely targets. The 2.06 level is a full 2,000 pips higher than the current price.
This is exactly the type of trade I target with pattern trading analysis.
Now letâs look at the charts (and trade recommendation) for a similar trade in GBPNZD on February 18:
As you can see, I recommended a buy at 1.8901. I then recommended adding to that position at 1.9027 in this email on February 20:
The subsequent price action generated about 800 combined pips as GBPNZD raced higher to 1.9147.
So why was I so bullish? On this above daily chart we can see the double bottom, itself part of an inverted head and shoulders pattern. Both patterns are very bullish, especially when you look at some of the long spikes on the right shoulder.
Thatâs how we got so many pips before the biggest move up.
But thereâs more good news: I think this move is far from over, so donât sell out yet. The longer price consolidates at this level, the higher the chances of a serious move much higher, perhaps to 2.04.
Again, this is another example of how prices are often indicating the price action well in advance of events.
One final GBP-related note for EURGBP (the Euro against the pound).
For this pair, I made the case that if the market was going to go higher after multiple bottoms then it should have done so already. Instead the market was looking very heavy from the quadruple top and I recommended selling at 0.8657 on February 24 as you can see here:
EURGBP subsequently sliced through the neckline which (until that point) had been holding over the last year and counting.
EURGBP has bounced slightly, but I remain bearish with this 57 pip gain and I think further gains are coming on the short side here. My near term target is 0.83 or lower.
All these trades together are how Iâve accumulated 1,577 pips in the last couple of weeks.
Again, all this comes from reading patterns and entering when the price momentum is in our favor. We donât rely on news to âmove the marketâ because the moves are already primed to happen from earlier price action.
That includes when things donât go the way weâd like.
âWhen XAUUSD (spot gold) broke out of a long-term Symmetrical Triangle price pattern, I was hopeful we might see a strong bull run contingent on certain price levels being breached.
Unfortunately, recent price action once again saw the yellow metal turned back at the 5-year resistance level between 1340 and 1360. While itâs still early in March, this monthâs retreat back into the long-term symmetrical triangle is starting to feel like last monthâs advance was nothing more than a âbull trapâ.
If this is the case, XAUUSD could fall precipitously from current levels to 1200 or thereabouts. I think the gold bulls will have to wait awhile longer before that yellow dog starts barking again ⦠for real.
If you want more evidence, gold bearishness would appear to be confirmed by spot silverâs price action (XAGUSD) too.
XAGUSD has also failed to budge on its monthly chart. Itâs very unlikely that gold will move without silver following and right now silver looks more bearish than bullish:
Since itâs been awhile since Iâve shown you a silver chart, itâs worth noting the large double top on the monthly chart and the neckline at 26 from which silver has never recovered (thus far).
Silver is also tracking within a bearish descending triangle and has failed to break out from this pattern. Silver seems more likely to hit the 14 support level (and possibly break down from there) rather than stage a bullish breakout to significant highs.
If and when that happens, itâs difficult to make a bullish case for gold either. The day of a precious metals bull market will take awhile longer to arrive.
As for the stock market, thereâs been little action of note recently.
The U.S. stock indices have rallied approximately 20% from there respective December lows and are currently trading at critical resistance level(s) â 1,750 in the Nasdaq â QQQ (ETF), and 2800 in the S&P500. Penetration above resistance levels would imply the long-term bull market in this asset class is intact
But instead, things remain stuck in neutral with nothing new to report from last week. Iâll have more to say on U.S. stock indices when they make a significant move.
For now, youâll find it much more interesting to follow any GBP-related pair. Especially GBPAUD and GBPNZD on the long side and EURGBP on the short side.
Also consider a short on AUDUSD if the trigger price level is breached.
In the meantime, you can âget the jumpâ on that potential future announcement by booking a spot at my LIVE 2-Day Bootcamp where Iâll demonstrate exactly how to make trades just like the ones Iâve outlined here, including my âLazy Traderâsâ 5-step execution plan. Thatâs the one Iâve used to pull in more than 6,108 pips in FX last year and highlight the potential winners Iâm showing you today.
I wish you a very healthy and prosperous trading week.
Itâs never too early to learn just how well my methods work in the forex market even if things are projected to be a bit quiet there for the next little while.
[Find out more about the Bootcamp here at this link](
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Regards,
Mark Shawzin
The Pattern Trader 2234 North Federal Hwy Suite 1107 Boca Raton FL 33431
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