The USD Index is setting itself up for a sizable move that we won't watch disinterested. The charts have sent their message, upon which we have acted. Let's assess the outlook for the days ahead as it stands right now.
Meanwhile in oil, the many days of sideways consolidation are over. Black gold jumped higher yesterday and isn't looking back today either. The earlier breakout above the declining resistance line has been more than confirmed, the upswing is alive and well, so let's shift our attention to reexamining the target area for cashing sizable profits.
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
Crude oil soared after reversing yesterday and it's on its way to reaching our upside target. Let's take a closer look at the details.
In yesterday's Alert, we commented on the overnight reversal in the following way:
Crude oil declined earlier today, but it recovered, erasing the entire overnight decline and has now moved even a bit above yesterday's close. The decline was most likely a form of verification of the breakout above the declining resistance line that's based on the September and early-October closing prices. In Tuesday's analysis, we warned you that crude oil might test the breakout above the resistance line by declining a bit, but overall the upside potential for this trade remains intact. That's exactly what happened and the upside potential for this trade does indeed remain intact.
The breakout is now fully confirmed, so crude oil is likely to rally.
Consequently, 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.
After the above was posted, crude oil rallied further, and the upswing continues also today. The price of black gold didn't reach even the first of the classic Fibonacci retracement levels yet, so the odds are that the rally will continue.
Our comments on crude oil's medium-term chart remain up-to-date:
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.
The CCI moved above the -100 level which often corresponded with local rallies in the past. That's yet another reason to expect higher crude oil prices in the near term.
Consequently, in our view, the current long position is justified from the risk-reward point of view. We are moving the profit-take level a bit lower (ten cents) to increase the odds of completing the transaction.
Trading position: Long position in crude oil with a stop-loss order at $49.88 and the binding profit-take target at $55.78 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, based on the overnight decline to the previous lows and the rising support line, the long position in the USD Index was opened.
Let's take a closer look.
The USD Index declined in a visible manner yesterday and it moved a bit lower today as well. At the moment of writing these words, the USD Index is trading at 98.36, so the new long position is almost flat (profitable, but very insignificantly). No wonder - the position is open for less than 24 hours so far and its potential is likely to be realize in the following days (or weeks, if you choose to follow the medium-term trade that we described yesterday).
The double support that was reached: the early October low and the rising red support line based on the August lows is likely to trigger a reversal, just as it did in September. Please note that, just as it was the case in September, the USD Index might move below the red line temporarily (perhaps to the 50-day moving average at about 98.15 or so) before rallying. Such a move would not invalidate the bullish setup at all.
Our comments on USD's long-term charts remain up-to-date:
Why are we focusing on the long positions in the USD Index? Because of the long-term trend, which remains up.
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.
Trading position (short-term; our opinion): Long position in the USD Index with a stop-loss order at 97.27 and the binding profit-take target at 99.17 is justified from the risk/reward perspective.
As always, we will keep you - our subscribers - informed.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
