The USD Index made another run higher yesterday, though the bulls' efforts have fizzled out. Yet again, the index closed near its lows. Is short-term weakness merely likely or also imminent? And again, how to play that in our trading?
Meanwhile oil has reached an important support yesterday, and we conveniently cashed in decent profits. The setup leading to this decline has been mirrored once in recent history - so if it is any guide, will it lead to a bit more downside, or is a price recovery imminent. Importantly, how should we handle that in our trading?
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
Yesterday, crude oil hit our binding exit target, which means that our trading position in crude oil was closed and consequently, you took profits off the table (that is if you chose to follow us on that trade). And... It seems that it is a perfect time to switch sides and go long crude oil with a short-term trade in mind. Here's why.
The rising medium-term support line was just reached and the strong support provided by the previous lows and the 61.8% Fibonacci retracement level based on the 2018 - 2019 upswing is just a bit over $1 lower than yesterday's closing price. This means that the short-term decline is likely over or very close to being over.
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.
So, what's like to happen here? Crude oil is likely to start a counter-trend upswing that should take it at least a couple of dollars higher. The problem is that it's not clear if the short-term bottom is already in, or if crude oil is going to decline a bit more before it forms it.
Given this uncertainty, we think the optimal risk to reward position for a long trade here will be achieved by placing a buy (limit) order with a lower entry price.
Consequently, in our view, the following long position is now justified from the risk-reward point of view.
Trading position (short-term; our opinion): waiting buy order (to be executed without an additional confirmation) with the entry price of $51.72 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. The key development that might distort the price movements will take place on Friday, so the market is likely to move according to its trend until that time. Friday's price movement might be a bit more chaotic, though.
And which way is the current main trend pointing?
In the same direction as yesterday.
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 yesterday's analysis we commented on the shape of the pre-market session in the following way:
On the short-term chart we see something new. In the previous Alerts, we wrote that the lack of breakout above the rising green resistance line was a reason for caution and against opening a new speculative trading position. Yesterday's reversal and daily decline show that it was a good decision to stay out of the market.
Once the green line is broken, the USD Index is likely to soar to about 102 level or even beyond before it takes a bigger breather. The jobs report and Powell's speech are on Friday, which means that there might be no decisive price action until that time. There is already a bullish hint, though.
You see, each time a new yearly high was made, and the USD Index declined, the next daily session was also a daily decline. This time is different - so far. The USD Index is up by 0.24% so far today, which might be a small indication that this time will really be different and the USDX will break higher shortly.
Still, until that happens, the jury is out and we're on the sidelines. So is our capital in case of the currency market. Based on the USD's very long-term chart is seems that we will enjoy many days of higher USD values, but from the trading point of view it appears best to enter the market only after the breakout materializes.
It turned out that this time was actually not different from the previous cases. The USD Index declined later in the day, and 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.
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.
As always, we will keep you - our subscribers - informed.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
