Consolidation Phase

Earnings give stocks one last boost before the FOMC decision Consumer Confidence surges to a 2-year high Dow eyes longest winning streak in six years Volatility should be elevated this week as we have a key FOMC meeting and peak earnings season.  So far, the trade has been for the money flow to continue go into small stocks, with some lowering their exposure to mega-cap tech trade.  This earnings week has the potential to drive the recession-based pullback that seems to have evaded us this year. US stocks have had an interesting run here as relentless Nasdaq rally has cooled, the Dow Jones Industrial Average winning doesn’t want to stop, the Russell 2000 tries to play catchup, and the S&P 500 nears record high territory. After more than a year of Fed unity in raising rates to combat inflation, the end of the rate hiking campaign will start to see some dissent from the hawks, centrists, and doves. The voting hawks Waller, Bowman, and Logan might argue that the Fed needs to keep optionality about more tightening on the table.  The voting doves are Cook and Goolsbee, who both will probably remain supportive for raising rates on Wednesday, but might show support for a long pause, that might eventually become the peak in rates. Powell and the centrists have the luxury of not overcommitting a position about the future path of rates, potentially setting up the Jackson Hole Symposium as the time to signal that they are most likely done raising rates. US stocks are entering a consolidation phase ahead of massive earnings (Microsoft, Alphabet, Meta, and LVMH) and three big rate decisions by the Fed, ECB, and BOJ.  Stocks have been mostly posting a short-term advance heading into these major market moving events and that could extend to an attempt at record highs if the Fed shows confidence that the disinflation process is firmly intact and if the mega-cap tech earnings deliver better-than-expected earnings with promising outlooks.  A lot needs to go right for a longer-term rally to unfold, which might suggest we could see the Dow Jones Industrial Average and Russell 2000 outperform the Nasdaq over the short-term.  If after this week, Wall Street becomes worried that the Fed is still leaning towards delivering one more rate hike, that could spook a lot of investors, which would see that as a policy mistake. If odds for a September 20th meeting rate hike end up becoming a coin flip, that could see a good portion of the recent rally with market breadth trade come undone.    

Analyzing Thursday's trades: GBP/USD on 30M chart     On Thursday, the GBP/USD pair fell to the lower band of the sideways channel, and this time the pair seems set to break through it. The pound sterling has already consolidated below the 1.2620 level, but it is still relatively weak. Nevertheless, the fact that even after the pair rebounded from this level on Wednesday, it did not aim for the upper band of the channel but returned to the lower one, indicates a possibility of bringing back the downtrend and an exit from the consolidation phase. There were two reports that could influence the pair's movement. Neither was good enough to propel the dollar by 100 points. This is another factor suggesting a potential revival of the downward movement. This is what we're counting on. We certainly don't expect the pound sterling to surge anytime soon. But who knows what Federal Reserve Chair Jerome Powell will reveal to the market on Friday...   GBP/USD on 5M chart Several trading signals were formed on the 5-minute chart. Midway through the European trading session, the pair settled below the 1.2688 level, which should have been taken as a signal for a short position. Subsequently, the price rebounded from this level, surpassed the 1.2653 mark, bounced off it from the bottom, and descended to the 1.2605-1.2620 area. The price did not form a buy signal at midnight, the short positions should have been closed manually. The profit stood at about 60 pips, which is an excellent result. But Thursday's movement was quite commendable.   Trading tips on Friday: On the 30-minute chart, the GBP/USD pair continues to tread within a sideways channel. We're still leaning towards a further decline in the British pound, believing it's currently overbought and unjustifiably pricey. However, the price hasn't left the consolidation phase yet, so there might be a new rebound from the 1.2620 level, which can push the pair's growth. The key levels on the 5M chart are 1.2457, 1.2499, 1.2538, 1.2605-1.2620, 1.2653, 1.2688, 1.2748, 1.2787-1.2791, 1.2848-1.2860. Once the price moves 20 pips in the right direction after opening a trade, you can set the stop-loss at breakeven. On Friday, there's nothing particularly noteworthy slated in the UK. Investors will be expecting to listen to Powell's remarks in the Jackson Hole symposium.     Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal. 2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored. 3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading. 4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually. 5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel. 6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.    

Medium-term downtrend phase of AUD/USD has reached an oversold condition with downside momentum easing. Key short-term support to watch will be at 0.6385. Intermediate resistance at 0.6490. The price actions of AUD/USD have been oscillating in a medium-term downtrend phase in place since the 17 July 2023 high which has been reinforced by the bearish breakdown of its former medium-term ascending trendline support from 13 October 2022 low on 9 August 2023. So far, the AUD/USD has plummeted by -530 pips from its 17 July 2023 high to its 17 August 2023 low of 0.6365, and the recent four weeks of decline have led to an oversold condition in terms of price actions     Fig 1:  AUD/USD medium-term trend as of 28 Aug 2023 (Source: TradingView, click to enlarge chart) The daily RSI oscillator of the AUD/USD, a gauge that measures momentum, oversold, and overbought conditions on price actions reached an oversold condition recently on 17 August 2023 and shaped a bullish divergence condition (a higher low) thereafter on last Friday, 25 August. These observations suggest that the downside momentum of the ongoing medium-term downtrend of AUD/USD may have eased which supports a potential imminent minor countertrend/consolidation phase. These positive elements have also occurred at a key support of 0.6385 that coincided with the 10 November 2022 low and the 76.4% Fibonacci retracement of the prior medium-term up move from 13 October 2022 low to 2 February 2023 high.     Fig 2:  AUD/USD minor short-term trend as of 28 Aug 2023 (Source: TradingView, click to enlarge chart) Since its 17 August 2023 low, the price actions of AUD/USD have started to evolve into a minor range configuration with its key short-term pivotal support at 0.6385 and respective minor range resistance at 0.6490 (also the 20-day moving average). A clearance above 0.6490 sees the next resistances coming in at 0.6510 and 0.6600 (5 August/10 August 2023 minor swing highs areas, pull-back resistance of the former medium-term ascending trendline support from 13 October 2022 low & the 50-day moving average). However, failure to hold the 0.6385 key short-term support invalidates the minor countertrend rebound scenario for a continuation of the impulsive down move sequence of the medium-term downtrend phase towards the next supports at 0.6310 and 0.6270 in the first step.