The USD Index closed mostly unchanged on Friday, supported by the relatively strong employment data. Looking at the recent manufacturing readings, Friday's figures really could have been worse. So, can there be more downside action shortly before another leg higher?
Meanwhile, oil enjoyed higher prices on Friday, closing right on its declining resistance line. Its upswing continues today, boosting our open profits. Where is the oil price move likely to reach? Let's see the charts and to get the most likely target.
As you've read in the previous Oil Trading Alerts and Forex Trading Alerts, Nadia Simmons, who is the author of these reports has not been feeling well. This remains to be the case, and as it's been several days since you received crude oil or forex analysis from us, I (PR here) would like to help.
Consequently, I will be writing analyses of both: crude oil and the forex market and I will publish them combined, so that those, who normally enjoy access to only one of these reports, will get something extra. That's not much of a positive surprise for those, who already have access to both Alerts (for instance through the All-Inclusive Package), so if you have access through this package or you subscribed to both products individually, I will provide you with something extra. I will analyze any company of your choice with regard to its individual technical situation, and I will send you this on-demand analysis over e-mail. If this applies to you, please contact us with the name of the company that you're interested in.
Having said that, let's take a look at the crude oil market.
Crude Oil Analysis
The price of black gold is rallying as we've been expecting it to, making our long position's profits grow. Importantly, our previous observations remain up-to-date, supporting further upswing.
Let's take a closer look.
At the moment of writing these words, crude oil is well above our entry price of $51.72. The key development is that it's also above the declining resistance line that is based on the previous closing prices. On Friday, crude oil closed right at this line, which was the first session when crude oil managed to move to this line after a daily rally. All the other sessions since mid-September were characterized by intraday declines. This is a short-term game-changer and a confirmation of what we wrote previously. Today's upswing also appears to confirm the bullish indications.
Our upside target of about $56 remains intact - it's based on the 38.2% Fibonacci retracement level and the likelihood of a rebound to the previously broken support line. This line is visible on the below medium-term chart.
The rising green line is very close to the $56 level. That's above the 50-day moving average, but let's keep in mind that this moving average has rarely stopped the previous rallies. Instead, it was usually insignificantly broken to the upside before the short-term rallies ended. We saw that multiple times in August.
The buy signal from the Stochastic indicator is now clear and thus we expect more traders to join the long side, contributing to higher crude oil prices in the near term.
Moreover, our comments regarding similarity in terms of time remain up-to-date:
That's based on the price moves. Now, considering the aspect of time, we get another indication that at least a brief turnaround is likely. Crude oil has been declining relentlessly for the past 7 trading days. There was no similar case when that happened in 2019. The most recent similar case is when crude oil declined in the fourth quarter of 2018. Interestingly, it happened at relatively similar price levels. The red rectangles that we used to mark the above are identical. If crude oil declines to $51 here, the size of the relentless declines will be practically identical. And history tends to rhyme.
That's exactly what happened. Crude oil declined to $51.01 and the sizes of the declines are practically identical. At least a short-term rebound is now likely.
Consequently, in our view, the current long position is justified from the risk-reward point of view.
Trading position: Long position in crude oil with a stop-loss order at $49.88 and the binding profit-take target at $55.88 is justified from the risk/reward perspective.
Forex Analysis
As far as the currency market is concerned, Nadia usually covers the individual currency pairs. However, that's not what I specialize in, so instead of the usual format of these analyses, I will maximize their usefulness and likely profitability. This means that instead of focusing on individual currency pairs, I will cover the USD Index, as that's what I've been following on a regular basis for years.
It's also tradable, as there are futures on it (DX symbol) as well as ETFs, for instance the UUP and the UDN.
In short, nothing really changed in the USD Index based on Friday's price movement so everything that we wrote in the previous Alert, remains up-to-date. We will provide you with a more detailed update nonetheless.
Which way is the current main trend pointing?
In the same direction as previously.
Up.
Our previous comments on the long-term charts remain up-to-date:
The USD Index is after a major long-term breakout and this breakout was already verified a few times. The most recent rally is just the very early part of the post-breakout rally. Much higher USD Index values are likely to follow in the upcoming months.
The long-term trend is up as even the dovish U-turn by the Fed, rate cuts, and myriads of calls from President Trump for lower U.S. dollar and much lower (even negative) interest rates, were not able to trigger any serious decline.
What we saw instead was a running correction that's the most bullish kind of corrections. It's the one in which the price continues to rally, only at significantly smaller pace.
Even though the USD Index is likely to soar in the following months, it doesn't mean that it has to start moving sharply higher right away. Let's check the short-term chart for details.
In Thursday's analysis we commented on the shape of the pre-market session in the following way:
(...) it turned out it was a good decision to wait for the additional confirmation instead of entering the trade yesterday. Right now, we might see a sharp breakout anyway, but given Tuesday's reversal and yesterday's decline that seems doubtful. Instead, we might see a decline to the rising red support line or to the 50-day moving average (marked with blue).
This means about a 0.6 downswing.
It might be a good idea to wait for the market to decline on Friday or shortly thereafter and enter a long position then. Practically each time after the Fed speech, interest rate decision or strong criticism from Trump, the USD Index declined but then rose back up. It might be a good idea to wait for this initial slide and then enter a position that's in tune with what usually happens. Of course, if the USD Index breaches through the rising red support line and the 50-day moving average, it will be likely to slide further before the rebound takes place. So, we plan to wait for the USD Index to bottom and perhaps enter a long position at that time.
Some traders may want to enter a short position here, but we prefer to enter a trade that's in tune with the main trend (up) as it's easier to wait such trades out if the entry price turns out to be less than perfect.
In short, the above remains up-to-date. The USD Index is declining, but it didn't reach the aforementioned support levels: the rising red support line or the 50-day moving average. This means that lower USD values could still be seen before another rally takes place. The downside is too limited for us to be opening a short position, considering especially that it's against the major trend.
Friday's Powell's speech didn't bring new information and didn't coincide with much action in the currency market - the USD Index moved down by just 0.05. All in all, there was not much action in the currency market last week, but it seems that it's better to simply wait out the unclear times while sitting on profits from the previous trade (please note how the British pound rebounded shortly after we closed the short position in it on Monday) than to take unnecessary risks.
Trading position (short-term; our opinion): No position in the USD is justified from the risk/reward perspective at the moment of writing these words. We will probably enter a long position in the USD Index shortly.
As always, we will keep you - our subscribers - informed.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
