The USD Index went down yesterday again, this time stopping at two important supports: the declining support line and mid-September low. The news of Brexit deal being reached is testing them more than thoroughly. Will they be strong enough to prevent further declines before the USD’s long-term uptrend resumes?
Meanwhile, seesaw trading goes on, as yesterday’s upswing gave way to a lower open earlier today. Given the declining USD, couldn’t black gold have acted just a little bit stronger? Let’s take a look what it means for our open position – time to head for the exits, or brace ourselves for a more opportune exit point being hit?
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.
On an administrative note, Nadia will be back and Oil Trading Alerts as well as Forex Trading Alerts will take their regular form on Tuesday, Oct 22. Thank you for your patience.
Having said that, let's take a look at the crude oil market.
Crude Oil Analysis
We are closing the speculative long position and taking profits off the table.
Why did we change our mind regarding the most likely short-term potential of the black gold? Because of how crude oil used to react the USD Index these days, how it reacted to it yesterday, and how it is reacting today.
We previously wrote the following:
In the very recent past - the last several days - the USD Index and crude oil moved in the opposite ways. Thursday's and Friday's upswing in crude oil corresponded to declining USD. And the USD Index seems to be bottoming.
Instead of bottoming right away after we wrote the above, the USD Index moved even lower and reached its next support level. The way the link between crude oil and the USDX behaved, is what made us lower the profit-take level. You see, crude oil continued to take USD's lead, but the strength of crude oil's response was weak. Oil moved higher, but insignificantly so. This link is even more bearish based on what we see today. If a price doesn't bullishly react to what used to be a bullish factor, it's an indication that the price wants to move in the opposite direction.
To be clear - the above is not enough to make the short-term outlook bearish on its own. However, it is enough to make the short-term outlook relatively neutral. And if the outlook is neutral, then (opening) no position, neither long nor short, is justified from the risk to reward point of view.
The question remains whether one should close the position right away or wait for a better exit price. We initially (before today's decline in the USD Index) planned to bet on a very short-term increase in crude oil price. However, today's lack of a big rally is too bearish for us to justify keeping the long position any longer.
The chart below is what we had prepared a few hours before publishing this analysis.
What we focused on was the breakout above the rising resistance line and crude oil's breakout above the declining short-term resistance line and its verification. It reversed at the intersection of two lines, which increased the odds that we had just seen a reversal.
Indeed crude oil moved higher after the above moment, but based on a big pre-market decline in the USD Index, crude oil was able to rally to only 53.30. This means that it was not able to even get back to its recent high. This is a very bearish sign and one that almost makes us open a short position right away.
No, we are not opening it (we prefer to see how crude oil closes today), but we do think that the profits on the long position should be taken off the table. At the moment of writing these words, crude oil is trading at $52.97, which means that the above provides us with a $1.25 profit since we entered the current long position earlier this month (at $51.72, very close to the bottom).
The next trade will probably be a short position, at least based on the monthly crude oil chart below.
Crude oil reversed in a profound way in September, which suggests that lower prices are likely in the following months. The sell signal from the monthly Stochastic indicator also remains intact. That's in tune with the same indicator on the daily timeframe. The outlook is simply not as bullish as it used to be in the previous days.
Consequently, in our view, no position is currently justified form the risk to reward point of view. We might open a new short position soon, but we are not doing so right now.
Trading position: No positions.
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.
The USD Index declined today on the initial Brexit deal and this decline caused our positions to be closed at the stop-loss level. It was not very far, so it seems (of course this depends on how much capital one used) that the profits on the last two crude oil positions (the long one that we're closing today and the short one that we had closed previously) were greater the results of this single trade.
The long-term trend in the USD Index remains intact and the bullish outlook remains in place. However, based on the clear breakdown below the declining trend channel, it could be the case that the decline continues for longer (in terms of days, likely not weeks, and very likely not months) and thus we are not re-entering the long positions in the USD Index right now.
The breakdown is not confirmed in terms of the daily closing prices, so based on today's close the situation may become bullish once again, but right now, we can't say any position is justified as both: long and short position simply appear too risky.
Naturally, we will let you know in tomorrow's Alert (or today if the situation gets clearly bullish or clearly bearish even before the closing bell) how the situation looks once we get more clarity.
Naturally, the long-term trend remains up, and our previous comments on it 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.
Trading position (short-term; our opinion): No positions.
As always, we will keep you - our subscribers - informed.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
