First of all, since next week is ECB week, take all my analysis with a grain of salt. Next week might be a typical ECB week, with a zig-zag until thursday and a big move after that. And on friday, we have important EU news, too. So, even though I am bullish on the dollar, next week will be about looking for good entries, before the big events start. And it might be misleading until then. I am ready for EU to go up until then, with the smallest short “target” being somewhere in the 2120-40 region and the highest between 2220-2250. Good thing is, most dollar related pairs had a nice topping this week, EU, GU, AU and NU, as seen on the charts below. But for all pairs, the key will be to find a good entry and not start shorting right away. Same goes for UCHF. Even though my target is 9100+, it is current at a very strong resistance of 8900-8920, which it can’t break for some time now. So I am also curious to see, if it keeps lurking under it, waiting for big volume on thursday and friday or if bulls are able to take it out before the news events. Also important to note, that as I was warning last week, retailers are very bullish on EU, they had a tough week and are even more bullish now. As you can see on the community outlook image below, now the majority is long on EU, so its better to look for trades in the other direction, anyway. But scalpers should do good either way early in the week, until mid week.
Last week dollar made a few more scares to the bulls, but eventually won the fight and broke above 90, where it stayed after strong bottoming on a 5M chart before the market close. The interresting part is how it got there. The USD upmove started on thursday already, with Asia not being able to break the previous low, London was buying dollar most of its session and NY was just ranging, not being able to break it back down. And friday, being many times the most important day of the week, when it comes to future outlooks, just continued this path. We had important US news on friday, the numbers are rarely important, what the “big boys” do with them is important. First NY hour, we had a fake bear candle, quickly reversed the next hour. And London fix confirmed a strong bottom around 89.80. Next hour, we had an important speech from FED’s Clarida, who was basically talking the dollar down with negative outlooks. BUT the London fix support did not break, anyway. That was a sign, that whatever negative news might come, there is not much interrest from “big boys” to sell the dollar anymore, in other words, its undervalued. From that support, we went up above 90.20 and even though the last few hours before market close we had a correction back towards 90, it wasn’t able to break below anymore and ended up with a strong bottoming on the 5M chart. This might be a clue into next week…if there is no opening gap down, the 90 handle might be re-visited a few times, before the dollar heads above it towards 91 and higher. On the EU chart, this reflects to the 2100-2140 area, which is a very strong support zone. If this zone gives up and bears are able to close below 2100, it might go down below 2000, towards my first big target of 1920-50. Another positive thing for EU bears is the fact, that retail seems to be 100% convinced about 1.25 and I am seing a lot of people only looking for longs into a new high. I don’t see it…not from here, anyway.
Actually, most USD related pairs are due for a correction early this year…not just EURUSD, but also GBPUSD, AUDUSD, NZDUSD and USDCHF, USDJPY. I will make the analysis on EU, but the same applies for all the pairs, as technically, they are all showing the same signs. Dollar is oversold across the board and the question is not IF it corrects, but only WHEN and HOW MUCH. Fundamentally, EU reached a level last week, which even ECB couldn’t take anymore…and it dropped nicely off 2300. Technically, all indicators tell us, EU is overbought. I am curious about today’s market open, because looking at the H4 chart, if EU opens without a gap down, it may bounce up from current support at 2210-15, before moving down later in the day. So the asian session will be interresting, as to how high they can take it until Frankfurt and mainly London starts. But I will be looking only for short opportunitites this week.
Looking at fundamentals, this is still a bad time for airlines all over the world and it might not change anytime soon, but with the vaccine rollout and the airline travel hopefully going slowly back to normal in 2021, it might be a good time to look into undervalued stocks, for a medium to long term investment. Technically, AAL seems to be the best bet, looking at the monthly chart. Medium term target would be $30 and long term target 50-60.
This month is tough for dollar bulls…especially EURUSD is having a one-way ride, which is very strange. Its normal that fundamentals are behind technicals…it can take some time for fundamentals to be shown on the chart, but this month even technicals don’t seem to work. I keep thinking why that is…but for that to understand, I will need to see the following moves. It could be that the big boys know something we don’t and try to load up at better prices. If a brexit no-deal was announced this year, then it would make all sense. But next week is Christmas week and we have only 3 regular trading days, thursday and friday will be most likely “dead”. I expect more from the week after, New Year’s week and then the first full week in january. Those should be big movers and lift the dollar up. Right now USDx is hovering around 90 and whats a better spot to build longs than now. We saw a similar fight at 100, which also took some time, but once bulls lost there, we had a 1000 pip drop. As of now, my dollar target is 93-95 “only”, lets see what happens if its reached.
I also have a different reason to believe that EURUSD will start a drop and its on the EURJPY and USDJPY chart. UJ is close to what I think will be the bottom and should go up from here. Even though it can range in this area for a while, so no crazy upmove or downmove are expected for now. And when you look at the EJ chart, its at a strong resistance zone and can easily drop 300-400 pips. Now combine those 2 together and you get EURUSD as a full bear into the coming weeks.
EU broke all resistance levels this week, first 1.20, then 1.21 and finally bulls got weak below 2180. People seem to be panicking, closing their shorts and going long, which I don’t think is a good idea. Not at these levels, that is. Since the move happened early in the month, it can easily be a trap…the monthly candle only started and has most of the month left to close. In my experience, end of month and start of month are used to build big positions by big players. So its too early to tell, if this move is a definite breakout north or just a trap, with a possible monthly close below 1800 or lower. If it turns out to be a confirmed break out north, this would be the worst place to buy, anyway. I am seing 1880-1920 as the first area, which has a bullish potential again…and the second area would be 1750-1825. So bears might have better opportunities to close their shorts at those levels. This month’s close will give us a clue, if it will be time to start looking for longs next month or if bears take over. This month, there is nothing positive for bulls anymore, fundamentally. It looks like there won’t be a brexit deal after all, not this month that is. Following the negotiations this week, no side wants to make any concessions. And in my personal opinion, EU wants to “punish” UK for leaving, so they might let UK leave without a deal…let them suffer a little early next year, only to “force” them into a deal more suitable for the EU. Either way, this month, both EU and GU should depreciate, as the uncertainty grows. And lets not forget problems with the EU budget, which Poland and Hungary want to veto. So there is no time to panic for EU/GU bears, especially when dollar found some support at 90.50 today. AUD and NZD are topping with the USD also. UJ and UCHF bottoming…so I don’t see anymore dollar weakness this month. Profit taking might start as early as next week, taking USD back towards 92.50-93.00.
As I said last week, Thanksgiving week is a hard one to trade and it tends to go in one direction to trap retailers by the end of the week. Which seemed to be the case this week also. I was watching the PA closely and to me, this looks like a typical bull trap. Strong bottoming on the USD chart, very strong rejection on GU below 3400 and a friday fakey on EU, with a strong close at 1960. And seing how everyone has bullish predictions on EU, big players did the job well, to fool retailers. Now when everyone is convinced about an upcoming EU bull, we can start looking for short opportunities. Fundamentally, brexit is bad for both, EU and GU, deal or no deal, doesn’t matter. It will create a big uncertainty for months to come, possibly all year next year. My first big target on GU is 2900, with some bumps on the way, depending on the volatility is in december, but either way, 2900 seems like a safe target for me. When it comes to EU, I expect 1770 to be hit, with a possible bump between 1850-1870. For targets beyond that, we need to wait where the monthly candle closes in both november, on monday, and december. Its too early to predict anything beyond those levels now.
As I have been saying previously, to me, US dollar is bottoming, and most xxxUSD pairs are topping. Last week analysis for NZDUSD is still valid, went up a bit, but still didn’t even touch 7000 or came close to it. I thought it might spike up before a drop, but doesn’t even have power for that, it seems. So selling is still fine at the current levels, no matter how bullish the chart may appear to you. Same goes for EU and GU, where I am actually surprised people are still buying and from what I am reading on the forums, people take 1.20 or higher on EU as something that has to come. Well, all I can say is, good luck with such trades. Not only are EU longs accumulating negative swaps each day, to me the chart looks like it can break down at any moment. And with retail so convinced about longs, they will be adding longs on the way down…first at 1800, then 1750, 1700 and finally at 1600, where I expect most of the retail world to be long and strongly bullish, expecting another leg up…which may never come. If you look at the monthly chart, the targets aren’t up, they are down…and they are much much lower than where we are now. So why chasing longs for 50-100 or even a little more when the downside is so much more scarier? Being trapped in longs, when this thing breaks down, your account would be eaten up just by the negative swaps hitting you daily…even if we keep ranging just couple hundred pips lower. Not saying EU will break down and crash, but why take the risk, if it could? Fundamentally it will not only make sense, but it would even help the economy to recover faster. I am expecting a currency war next year, as 2021 will be about recoveries and nobody wants a strong currency for that, the weaker, the better.
Same story goes for GU, a lot of convinced bulls on the market, buying pound into the biggest uncertainty of the last few decades, the brexit. In january, UK is out of the EU, at this moment it doesn’t even matter if a deal is agreed upon, which it most likely will, because it would be a last mine half-baked deal, not making things any better for the UK, or EU for that matter. So what are the options? A deal will be announced…GU will spike up, can be even a few hundred pips, and that will be it…soon after market will realize it makes no sense to hold pound into 2021 and it will be sold out. And the second option…no deal…and a pound crash that will burn many accounts. So whats the point to look for longs at 3300? To hope for 3400? Or even 3500? And risk a crash towards 1.20 or lower? I will skip longs on GU at these levels, definitely above 3000.
Finally, lets take a look at UCHF, which is just EU reversed. I made the prediction below, early this year…when everyone was buying UCHF between 9700-9800, I had a feeling it will go down first, take out all the bulls and eventually turn up and strongly reverse upwards, for a longer term move. Half of it is done now…so the question is, will it work out in full? If it does, EU bulls will be in big trouble.
And one last thing…next week is Thanksgiving week in the US…in my experience, its not easy to trade, so if you are not experienced enough, better stay out. It might go in one direction all week, leaving many people trapped, whichever direction it decides upon.
Last week I talked about a possible dollar correction or reversal, which worked out fine and UCHF has hit both of our targets as per this article.
All trades from last week are still valid, so there is no point to do the same analysis again. I will focus on NZDUSD this week. It is very close to a strong demand zone for shorts, so its worth to look at. Last week, most NZ news were positive, central bank didn’t lower rates, despite big pressures to do it and YET the New Zeland dollar didn’t make as big of an upmove, which makes me think that bulls are now too exhausted. NZ is hovering below the 6900-7000 level and there couldn’t be a better place to short this pair. Mainly because its easy to place a SL, above 7000. But let the USDCAD trade from last week be a lesson for you, the tight SL I had planned for it, was hit early in the week and then price reversed immediately into the predicted direction. So when it comes to NZDUSD, even though 7000 is a strong resistance area, I wouldn’t be surprised, if it made a quick fake spike above, to hit all the SLs there and then be sold off heavily. So the 7050-7100 area is probably a better spot for a safe SL. When it comes to targets, first would be 6750-6775 and second 6500-6600.
I rarely trade the canadian dollar, as it can be crazy volatile and go too much in one direction sometimes, but the current chart setup offers a good opportunity with very little risk. As you can see on the chart below, 2950 is a strong support, holding now for over 2 years. Current price is now around 3060, so even a SL below 3000 might be used, if early in the week, the volatility is not too big. Target would be 3500, up to 3600 maybe, so the risk to return ratio is fantastic on this one, very little to lose for a lot to gain. And with Joe in office, oil will be most likely dumped, which only helps to decrease the CAD value.