The Forex Chronicles

Dow Jones Trading in Symmetrical Triangle Heading into Thanksgiving

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Price Action

The markets have been fairly turbulent in recent weeks. After a big sell-off that took the Dow Jones all the way down to 24,120, the markets bounced back and the Dow went on to hit a high of 26,278.

However despite this temporary strength, I think many traders and investors were wary that this may be a dead cat bounce and further weakness may be just around the corner, and this has proven to be the case so far because the Dow has since fallen back to 24,902 at the time of writing (based on the future price pre-opening).

Dow Jones Symmetrical Triangle - November 2018

Symmetrical Triangle and EMA Convergence

If you take a look at the daily price chart of the Dow Jones above, you can see that the price has been trading in a symmetrical triangle if you draw some trendlines connecting the highs and the lows of the recent price action.

Furthermore, you can also see that the EMAs that I like to use, ie the 20, 50, 100 and 200-period EMAs, have all converged and are tightly packed together.

Both of these chart patterns generally point to a possible breakout when they occur together, and with the symmetrical triangle getting smaller and smaller every day, a breakout is looking highly likely right now.

Trading Opportunity

At the moment the price is trading very close to the bottom of the triangle, and is therefore very close to breaking below the lower trendline and breaking out to the downside.

However it is still unclear whether the price is actually going to break below this trendline or whether it will find support at this level.

You would normally expect the price to continue falling, but we are now in Thanksgiving week, which is usually a very good week for the major stock markets, with the S&P 500 higher 75% of the time since 1945, for example.

So any downward breakout may be curtailed by a short-term rally during the remainder of Thanksgiving week, and with Christmas just around the corner, there could well be a Santa rally to look forward to in about a month’s time.

Therefore while this would ordinarily be a possible breakout opportunity, you have to be very careful if you are tempted to sell any downward breakout. Indeed I wouldn’t be at all surprised if the upper trendline is breached in the coming weeks.

EUR/GBP A Sell At 0.8900?

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Brexit Chaos

Some financial experts have recently claimed that the GBP pairs have become untradable just recently as a result of the ongoing chaos surrounding the Brexit negotiations, and it is hard to disagree with this.

That’s because there is so much uncertainty surrounding the Brexit deal, and so many questions still to be answered:

  • will Theresa May survive a plot to oust her from within her own government?
  • if she survives, does she have enough support to get the agreement through?
  • will the Brexit deal be delayed or changed if there is a change in leader?
  • will there be a catastrophic no-deal Brexit?
  • could there even be a second referendum?

It seems that every day that are several stories that only add to the confusion and chaos, and all of these events have a major effect on the GBP pairs.

However at the time of writing, it would appear that Theresa May’s position is looking a little stronger, and there is a greater likelihood that her Brexit deal will go through, although there are no still no guarantees of anything of course.

Time To Sell EUR/GBP?

The Euro rallied hard against the pound last week for obvious reasons, moving from 0.8656 to a high of 0.8908, but it is clear from looking at the price chart that the price has reached the upper trendline that has recently been established:

EURGBP Price Chart - November 2018

Subsequently, this trendline may well act as a strong resistance level in the coming days and weeks, even amidst all of the ongoing chaos surrounding Brexit.

Potential Trading Opportunity

The longer term downward trendline currently sits just above the 0.8900 level, which is interestingly a nice round number. So this is another reason why this pair may be sold off at this key level.

Therefore if you were thinking of trading this EUR/GBP pair, it might be worth looking for a strong reversal signal around this 0.8900 level, such as a pin bar or a divergence pattern on the MACD, RSI and stochastics indicators.

You could also move down to the 4-hour chart and look for the same reversal signals on this lower time frame to get you into a trade earlier.

Anyway these are just my own thoughts and opinions on the future direction of this pair. At this moment in time, I would say that a reversal is looking more likely, particularly with Theresa May’s position strengthening, but please note that I am not offering any trading or financial advice. This would still be a risky trade because this and other GBP pairs are still vulnerable to any major Brexit developments.

AUD/NZD Likely To Find Support At 1.0600

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Price Action

The AUD/NZD pair has fallen quite dramatically in recent weeks. After posting a yearly high of 1.1176 back in August, it has since fallen all the way down to 1.0620, which is equivalent to a fall of 556 pips.

Looking further back in time, the price has generally been trading in a fairly predictable sideways trading range, generally fluctuating between 1.13 and 1.03, so there is nothing unusual in these recent price movements.

However the key point I want to make in this article is that the price is now approaching a key support level that may well prevent the price from falling a lot further.

Support Level

AUDNZD Weekly Chart - November 2018

Although there has been a lot of sideways movement, if you look at the weekly chart above, you can see that the price has been slowly trending upwards since 2015 (indicated by the rising trendline), and has always found support when it has come close to this trendline, bouncing off it on 5 separate occasions.

Future Price Direction

Based on this key support level, you would have to say that the price is highly likely to reverse and move higher as it gets closer to this trendline.

Therefore as the trendline is currently around the 1.0600 level, it may be worth watching for possible reversal signals on the daily chart to look for opportunities to go long, although as always, I am not recommending any trades or offering any advice. These are just my own thoughts and opinions.

Pin bars and divergence patterns on indicators such as the RSI, stochastics and MACD are examples of some very effective reversal signals that are worth looking out for on the daily time frame.

The bigger picture is always best viewed on the weekly time frame, but it always a good idea to zoom down to shorter time frames, such as the daily time frame in this instance, in order to spot the reversal signals earlier and get a better entry point.

Profit Target

If the price were to move higher, there is the potential for the price to move back up to the 100 and 200-day exponential moving averages on the daily chart, which are currently around the 1.0860 mark, 240 pips higher, particularly as the 200-week moving average is currently around the same level.

However there are still no guarantees of anything at this stage because trendlines don’t last forever and the longer they go on, the more likely they are to be broken.

This is why there is a need to look for definitive reversals around this level rather than blindly opening long positions at 1.0600 in the hope that the trend will resume.

Crude Oil Analysis For November 2018 – Is This The Bottom?

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Price Falls in October

The price of crude oil has fallen quite sharply in recent weeks after posting new highs at the start of October.

After posting a high of $86.65, the price of Brent crude is now trading at $72.83 per barrel at the time of writing, while the price of US crude oil has fallen from a high of $76.81 to $63.10.

Subsequently the price has actually broken below the all-important 200-day exponential moving average, which isn’t necessarily a sign of further weakness by itself because we haven’t yet a death cross, where the EMA (50) crosses below the EMA (200). However it does show just how much the price has fallen from its highs.

The question is, how much lower can the price of oil go, and have we reached the bottom?

Future Price Prediction

I personally think that we are now very close to the bottom because some of my favorite technical indicators are suggesting that the downward price trend is running out of momentum.

For example, this is the chart that I am currently looking at for US Crude:

US Crude Oil Chart - November 2018

It might be a little hard to see on your computer screen or phone, but the MACD histogram bars are showing signs of divergence (failing to post new lows as the price hits new lows), and two of the most effective oversold and oversold indicators, ie the RSI and stochastics indicators, are both below the oversold levels of 30 and 20 respectively and look as if they are starting to turn upwards.

As a result of this, I would expect the price to move back to the 200-day moving averages on both Brent and US crude, which would give price targets of $74.71 and $67.28 respectively.

However these are just my own thoughts and opinions, and I am not recommending any trades or offering professional advice in any way.

I am not planning to go long on either market, but the fact that both of these commodities are starting to look oversold has made me look again at companies such as BP and Shell, whose prices have fallen along with the price of oil, particularly with both companies going ex-dividend this month.

GBP/USD Analysis – The Importance of the EMA (200)

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Introduction to the EMA (200)

The 200-day exponential moving average, or EMA (200) for short, actually has a lot of importance in the world of trading.

When the price breaks upwards through the EMA, it is often a sign of strength, but more significantly, when the EMA (50) crosses upwards through the EMA (200), it is a much stronger signal to go long.

Similarly, when the EMA (50) crosses below the EMA (200), it is referred to as a death cross, and gives a strong signal to go short.

However it is important to note that the EMA (200) is often a key support or resistance level, whereby the price will touch this line, before reversing in the opposite direction.

Many people are sceptical about the importance of such indicators, but you only need to look at the daily chart of the GBP/USD pair to see how the price reacted when it touched the 200-day moving average:

GBPUSD EMA (200) Resistance - October 2018

GBP/USD Sell-Off

The red line indicates the EMA (200) in the chart above, and you can see that the price touched this key indicator on four separate days, and came close to it on one other day as well, but on every occasion the pair was met with a wave of selling that drove the price back below this indicator.

Similarly, this indicator will have acted as a target price to take profits for any people who were long on this pair, so this too would have helped force the price down.

Final Thoughts

The point I want to make is that this 200-day exponential moving average is always worth including on your daily price charts because it is a good place to take profits, and is a good level to watch because it often acts as a key support or resistance level.

Similarly if the price goes straight through it and the EMA (50) later crosses through it as well, it is often seen as a very strong signal that a new trend has emerged. Therefore you should consider looking for opportunities to get in on this trend at a good price when this occurs.