Price Action Setups in USD & Equity Indices
The early portion of today’s trading brought upon a reversal in some key asset classes, key of which were equities after the rip-roaring run of the past year. Combining this with a pullback in the U.S. Dollar opens the door for some interesting price action setups for the week ahead.
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- We started off by looking at the U.S. Dollar, which appears to be heading towards the prior zone of resistance (as potential new support) that runs from 94.08-94.30. We’ve seen support show a bit-higher since the breakout from two weeks ago, around 94.44; but a move below this level could increase the attractiveness of longer-term bullish plays in the Greenback as that prior zone of resistance confirms as higher-low support on longer-term setups.
- We then moved over to AUD/USD as one of the more attractive ways to play USD-strength continuation. We had looked at an Analyst Pick three weeks ago and we’ve hit the first target while moving the stop down to break-even; and this morning we added another position to the short-side of the pair. Price action remaining below .7750 keeps the door open for short-side continuation, and this becomes an ideal area to follow for stop placement on bearish continuation trades.
- We then moved over to look at some equity indices, and we started with the Nikkei. The Nikkei is in the midst of a ridiculous bullish run, and this is driven by the Bank of Japan buying equity ETF’s with stimulus Dollars (or Yen, in that case). This has shot prices in the Nikkei up to a key level, which is also a fresh 25-year high. This level is the 50% retracement of the 1990 top down to the 2008 bottom at 23,127.4. With today’s reversal, we have what is in essence a long-legged spinning Doji; and this is the type of setup that could appear attractive for short-side exposure. I’m personally not looking at that, as I’m continuing to hold a bullish bias here; instead waiting for prices to move down to support at which point buying opportunities become present.
- We then looked at the Dow Jones Industrial Average. Stocks are hot in the U.S., too, but that heat has been more of a longer-term build rather than the short-term gasp that we’ve seen in the Nikkei. In DJIA, there is some unfilled gap from a few weeks ago that runs from 22,997-23087, and this can be an interesting area to follow for support in buy-the-dip strategies.
- We then moved over to the S&P 500, which is similarly pulling back after the exuberant run that’s shown over the past year since the Presidential Election. We looked at two similar recent gaps that have yet to fill that can be interesting for support plays in bullish continuation strateiges.
- We then looked at the Nasdaq with the same prognosis. Still bullish, looking for higher-low support for top-side continuation strategies.
- Lastly on the equity side, we looked at the DAX which is catching resistance at the 78.6% extension of the German unification move. This is an area that I do not yet want to look to buy, as each of the Fibonacci extensions of that major move that we looked at led to prolonged pullbacks; and we don’t yet have any evidence to suggest that this iteration will be any different.
- We then moved back to FX-land to look at EUR/USD. I’m still bearish here, but I expect prices to rally above the prior swing-high from NFP last week. This is starting to feel like a bear trap, where a deeper bullish move into the prior zone of resistance traps/stops out bears before the bigger-picture bearish theme might come back. We had discussed this market in-depth this morning in the article, USD Pulls Back from Resistance – But Will Bulls Respond to Support.
- We then looked at GBP/USD, which remains messy. Prices are currently finding support on a trend-line projection that we’ve been following. Nonetheless, the current sloppiness of Cable price action leaves little of note to gleam a directional bias. The one area of interest could be a re-test of 1.3187 as resistance.
- We then looked at USD/JPY, which is nearing an interesting level of support around the 113.00 level.
--- Written by James Stanley, Strategist for DailyFX.com
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