Hey there Trader,
Another week, another update on GBPNZD (the British pound against the New Zealand dollar).
Thatâs because Iâm still very bullish on this pair and you really donât want to miss out on this one.
For the last, while all pound correlated pairs have been buffeted by âon-again, off againâ Brexit news, news of agreements made and postponed, and so on. About the only regular theme is that the can might be kicked down the road yet again.
Youâd go crazy trying to process all this news.
Yet price action is much simpler to follow. And as you can see, despite all this conflicting news, GBPNZD has kept trekking higher as ordained by its pre-established and bullish long-term price patterns. This once again supports the idea that price is ahead of the news.
It sure doesnât seem like thereâs any Brexit uncertainty in the markets at this point â the markets have already voted.
In fact, it looks like they started a vote even a couple of years back with the onset of the double bottom price pattern in late 2016 and early 2017. This double bottom set the course for the reversal that weâre seeing today. There was a double bottom at 1.65 and now prices are 4,000 pips north of where they were two and a half years ago.
So, not withstanding several administrations coming and going, the markets have spoken and they spoke a long time ago. GBPZND looks set to keep going higher despite all the Brexit uncertainty and background noise. In fact, we had another double bottom at the 1.82 price level and the price has now just cleared the neckline of that pattern.
I recommended buying above the previous weekâs bullish key reversal 2.063, by the way. (A bullish key reversal is when the market makes a new low and then closes strongly at the high.)
And now weâre about 300 pips higher. Is GBPNZD done yet?
Not at all. Quite frankly, Iâm looking to add to my position as I feel that this pair is still headed much higher. If we look at GBPNZD in context of this long-term chart, thereâs an enormous base thatâs been built â almost like a cup and handle with this entire pattern being just a base for liftoff. As the saying goes: âthe bigger the base, the more into spaceâ with âspaceâ being all that white space well north of the current price. This is where I anticipate GBPNZD heading over the next few days, weeks, months, and possibly even years.
So if youâre still looking to take a position, go ahead. But be warned this pair is very volatile. Donât set your stops too close and trade with a position small enough to let you sleep at night.
Now onto the dollar, which is also very important right now.
Letâs take a look at the 42-year price history of the U.S Dollar Index (USDI, which is a measure of the U.S. dollar against a handful of major currencies). Iâve been focusing on this long-term chart because you can see weâre trading at a key resistance area right now.
This resistance area is even more important when we consider the descending triangle price pattern and the fact USDI is bumping against the downtrend line. If USDI starts turning here, this could become a major reversal to much lower levels over time.
How soon could it happen?
Well, hereâs another look at USDI, this time at the weekly level where each bar represents one week:
Not only does the 42-year chart look ominous, but also on this weekly chart weâre seeing definite bearish signs. Until recently, USDI has soldiered higher above its ascending trend line.
But with last weekâs price action, we closed smartly under that support line. This reversal, combined with the resistance areas Iâve highlighted and the 42-year chart, has set up the potential for what could be a huge reversal top in USDI.
We could still go one way or the other here, so the follow-through price action in the weeks to come is critical.
But this is starting to look like the beginning of a significant turn in USDI at the moment.
Letâs look at how some other currencies have performed in light of the above development, starting with GBPUSD (the British pound against the dollar).
The pound has been a key beneficiary of recent dollar weakness, despite everyone writing it off due to Brexit uncertainty.
But once again, we can see how price is ahead of events. Because although we still donât have any clear resolution of how Brexit is going to get sorted out, nonetheless GBPUSD has soared over 1,000 pips in the last few weeks.
I donât think itâs a coincidence that GBPUSD turned at an area of historical support.
More work needs to be done though. The 1.34 area is important here. Once thatâs cleared, weâd have a much clearer path to go even higher. Such movement will not occur in a straight line, of course. and weâll likely see high levels of volatility including sudden selloffs.
But if this market is real, weâve just seen the second bottom of a major double bottom at the 1.20 price level. Thatâs very significant when you consider weâve seen literally years of weakness in the British pound. We could be on the verge of a multi-year GBP bull market if this price action continues.
Now for the other pair, Iâve been watching like a hawk lately.
Letâs see how USDJPY is faring (thatâs the dollar against the Japanese yen):
My views on this pair have been bearish for some time, as regular readers know. Thatâs due to the
long-term price patterns, notably the double top in 2015 and then the descending triangle and the behavior within that triangle.
I made a boatload of profits shorting USDJPY in late March and April this year from the 112 area. Now I believe we may be at another inflection point where we see yet another reversal to the downside at the 109 area.
Thatâs because weâve just seen a narrow range bar last week. A narrow range bar is one where the weekâs range was considerably smaller than the three weeks prior. A narrow range bar right at the resistance area indicates this could be a very fertile area to short USDJPY with a sell stop.
Iâm actively looking to short USDJPY on this basis.
Bear in mind that earlier this year I indicated there was a huge risk: reward opportunity when the price was at the 112 area. I think weâre seeing the same kind of opportunity right now.
Place any short positions below last weekâs lows and donât get too greedy with the position size. I almost never risk more than 1% of my account in any one trade, even one as promising as this.
So what else is looking interesting this week?
GBPCAD is another chart thatâs worth a look (thatâs the British pound against the Canadian dollar this time), this time at the daily level.
As the pound increasingly grows stronger, weâre also seeing more weakness in the Canadian dollar. That should make for increasingly bullish price action in GBPCAD. This is bolstered by the clear double bottom at 1.59 we saw way back in the early August â September timeframe.
You can see how GBPCAD broke through the neckline of that pattern, then retested that neckline before catapulting higher. There will likely be some violent swings in this pair, but the overall trend should be higher.
Especially when EURCAD (the Euro against the Canadian dollar) shows signs of turning around at the weekly level.
Some time ago, I felt EURCAD was destined to go lower based on the double top and descending triangle price pattern you see here.
But subsequent price action didnât follow through, so this is an excellent example of how you must defer to the market even after drawing certain patterns. You can see that even after breaking the support line of the triangle, the price has refused to drop lower with two very clear key reversals and a double bottom.
Now Iâm looking for prices to go back inside the triangle and if ERUCAD breaks through the trendline, then we have whatâs called a busted triangle.
So EURCAD at the weekly level is a great example of how I draw my structure and then defer to the market. The market is always right. Iâm not going to impose my will on the market and obstinately declare the price must go down âjust becauseâ. If the price action isnât supporting what Iâm seeing and starting to reverse, then Iâll change my opinion to match the market.
Letâs look at the precious metals now, starting with spot silver (XAGUSD).
On this monthly chart, Iâm bearish on silver because of the huge key reversal right at a major resistance area. I still feel that this development was a dagger in the heart of the longs and that eventually, weâd likely continue lower. But for now, Iâm just going to stand aside and watch to see if thatâs actually going to occur. If the market supports what Iâm seeing, XAGUSD will return to the $14 level or thereabouts and Iâll short it at an opportune moment along the way.
But if it doesnât â if silver starts grabbing a foothold and digs in at current levels â then I wonât be afraid to pull the trigger and Iâll go the other direction. For now, Iâm content to wait and see what happens first.
Letâs look at spot gold (XAUUSD) to compare.
Based on recent reversals at the $1,555 area, I suggested gold was going lower in the short term and indeed thatâs what we saw. It broke from the $1,540 area when all the way to $1,460.
Now gold is consolidating. Is this just the pause that refreshes on a long-term bull market or will prices roll over and drop even lower from here? Iâm ambivalent at the moment and thatâs why Iâm watching to see what clues the market gives me â just like with silver.
One last chart before I sign off for the week: the S&P500.
As with the British pound, thereâs been a tremendous amount of background noise about the stock marketâs prospects such as an inversion of the yield curve, recession, an impeachment inquiry, all kinds of drama with Syria, and so on.
But this is why you need to be objective and just look at the price action. And if you stand back, you can clearly see the S&P has been traversing within the confines of a long-term ascending triangle. That triangleâs been marked by a series of bullish key reversals along the trendline and theyâve established a lot of support for this market.
So ultimately the path of least resistance still looks higher for now.
I would be cautious about a breakout to new highs, though. It would likely be a bull trap â so be careful and donât get carried away by your emotions. Watch the market action, not the news.
And with that, Iâll wrap up this weekâs report. Iâm very bullish on GBPNZD and bearish on USDJPY again. Iâm bullish on GBP and bearish on CAD pairs in general. Plus Iâm still on the sidelines with precious metals and the S&P 500.
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