Today (24/08/2015) we have seen HUGEEEEE moves on Forex, Indices and other financial markets. European markets faces the biggest loss since 2008, VIX surged by 67% today and according to The Guardian; ''Hundreds of billions wiped off world’s financial markets today''.
With all this news coming out every where and big sell off happening on Indices it makes us forget about trading the levels and only trade the noise. This is a big error for your results in the long term, no doubt, you can make very good pips in a very short time but for the market to bring you in and then reverse hard is very easy... Also another error as I already said, with all this media noise and big movements it makes us scared and especially: forget the levels.
As everyone today was speaking about $EURUSD reaching 1.1700, $GBPUSD reaching 1.5800 and $NZDUSD nearly 0.6200.... I was looking at the $USD Index (DXY) and thinking: is this the real top? Where all the big institution looking at?... So thinking about these questions and others.. I jumped into the $DXY Monthly chart and saw this:
By looking this $DXY monthly chart, we can see that today we touched the 2005 high at 92.63 which also has the 1.618% fib very close. For me at least, 1.618% is a very powerful fib level which I sometimes use to trade against when we reach there. Now observing the RSI, we can see that is going down (following the price action) but is going very very slowly which makes me feel that this can be a correction.
Now jumping into the Weekly chart, is even more interesting:
Looking at this chart straight away I saw a formation here: Bullish flag. After a very powerful move that we had last year until March this year, it is normal for the market to calm down a bit before any big move. So when the market wants to cool down, many times he makes a formation such as; channel, flag, triangle, range and others... and I love when any of these formations comes into play because it gives me an idea of when to buy (level) and where my risk is and also shows me that soon (can take days, weeks or months), it will continue the trend that was having before getting into the range.
Please, do not confuse yourself with formations, we have 2 types: continuation formations and reversal formations... Above I just spoke about the continuation ones..
Anyway, so there is maybe in flag in play in this chart, also 61.8% very close too and pitch fork line (I only put pitch fork on 30mins graph, but this one is working perfectly with price action). Looking price action, is in a very very 'rangy' mode here, not moving anywhere which is the perfect price action in flag. Looking the RSI now, is not giving any strong alert at the moment, but will be very interesting to see him breaking that big down trend line.
Now let's look the daily chart:
Looking at the daily chart, we can see that we are creating a triangle here and as I spoke above, it is another continuation pattern/formation on price action. Also, today we touched the 0.382% fib (first fib level) and is holding very well until now. RSI don't have anything there at the moment, will only give us any alert when we brake that trend line. So, today I want to see the close above the triangle support line (93.06) to give more support that this is not breaking today.
Now let's look at $USDOLLAR 4hr chart as I don't have the access of the $DXY 4hr chart, but it is the same thing:
Looking at the 4 hour chart (short term view) we can see that we touched and crossed by few points the 261.8% fib (last fib) today of the fib connecting the range high (12071-11065). Looking at that candle is not so bearish, nearly at the top of the candle (I will update about this candle on Twitter). On RSI, its nothing there until we cross the 30 line and close above.
Conclusion on $USD charts:
Looking at all this charts is not making me sell even though we had a very bearish day. Ofcourse, if you look at the 4hr and Daily is very bearish very now, but if you look at the big picture/long term (more important), we can see that we are in a consolidation period on $USD after 20% jump which is normal. So lets not forget about that flag. However, looking at the $DXY weekly, we can reach 92.18 (61.8% fib) and 92.00. So maybe there is this risk but we are very close to that price and I will trade this to the long side just when I can see that the Risk/Reward is on my side.
Now, lets look another pair which can help us understand better the price action and what the banks/institutions are looking at. Let's look the $EURUSD Monthly chart:
Looking the $EURUSD Monthly chart above, we can see that because of the jump on $USD, the $EURUSD went from 1.4000 to 1.0461. To get into that low he broke many trend lines and more especially; that trend line on RSI (that was big!). However, right now we are going higher but we still did not reached the 61.8%. Very 'rangy' here too which makes me think the same thing that I am thinking about the $USD; is he cooling down for the next move?
Lets go to the $EURUSD Weekly:
Looking at this Weekly chart, we touched the 0.50% fib today which is amazing for those trying to get short and those holding longs. Nothing interesting on RSI as he broke a minor trend line, but if he breaks that upward trend line, that will be very interesting.
Let's go straight to the $EURUSD 4hr now:
As we can see, we are in a channel on $EURUSD since March and is working AMAZING! Today we touched that channel resistance line (around 1.1700) and reversed very hard on London close. That candle is not bearish and is shows how many traders closed their longs there and how many went short. RSI is not showing anything eyet, but this pair is very very overbought (does not mean for you to sell now).
Conclusion on both analysis:
Looking at the $USD long term we can see that he is maybe in a flag and very 'rangy' indeed. Short term we touched a very very important level today (2005 high and 0.382% fib) which worked as a very strong support and for that reason, a ugly candle is showing but we need to see the close first (bullish, 4hr)
Now, $EURUSD is the same thing too, looking the long picture, we are consolidating after a big fall and also touched big resistance levels (0.50% fib and 1.1700 channel resistance). Short term, we are in a very strong channel and today we just touched the top of that channel and reversed hard. 4hr candle is very bearish but we need to watch the close first.
In my opinion (trading): I bought $USD across the board today:
short: $EURUSD,
long: $USDCHF, $USDCAD
I think we are in a great place on the $USD to own again.
Note: this trades are my long term trades.
I hope this post makes you know better where we are and what can happen.
By Thiago Duarte
Chief Strategist at Duarte Investment Group
thiago@duarteinvestmentgroup.com
@thiagotrader
Thank you for sharing such valuable information and knowledge. This can be great and helpful insights for us. I would love to see more updates from you in the future.
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