short-term uptrend

On Thursday, the ECB raised three key interest rates by 25 basis points, taking the benchmark lending rate to 4%, the highest since 2008. It also confirmed its intention to refuse to refinance coupons and maturing bonds, accelerating quantitative easing - another parameter of policy tightening.     Markets had anticipated this move, so the attention of traders and journalists was, as usual, focused on the comments that would determine the trajectory of future actions. In contrast to Fed Chairman Powell, ECB President Lagarde was much more reassuring about future moves. She confidently stated that a few more hikes would be needed, leaving little doubt about a hike at the next meeting. This sharply contrasted with Powell, who highlighted a July hike as the more likely scenario but did not rule out the possibility of no hike. Lagarde pointed to the strength of the labour market and rising core inflation as factors in domestic price pressures. Despite the reversal to a lower inflation trend, she maintained that the ECB still has ground to cover to contain inflation.     It took some time for the markets to appreciate the seriousness of the ECB's stance. An initial 0.5% rise in EURUSD on the release of the commentary, which did not soften the tone significantly from May, picked up after the press conference and continued for the rest of the day, giving EURUSD a 1.1% gain, with the pair stabilising around 1.0950. The pair's technical disposition should also be considered, as it adds to the amplitude. After rising above 1.0880, the EURUSD crossed the 50-day moving average, and a decisive take of this level further supports the buyers' resolve. The EURUSD has been trading in a broad bullish corridor since the beginning of the year after bouncing off its lower boundary earlier this month and confirming the seriousness of the short-term uptrend with yesterday's strong move. The bulls are now focusing on the 1.1050 area, the April high.     However, given the upward bias of the move, the pair could be as high as 1.1100 by the end of the month. The 1.1200 area will be the next major milestone, through which the ultra-long 200-week moving average trend passes, and many pivot points are concentrated. The dollar will struggle there.

Hang Seng Index has dropped by -2.4% since last Friday’s high ex-post interest rate cuts by PBoC. Short-term uptrend from 31 May 2023 low remains intact as it still trades above the 200-day moving average. Key support to watch will be at 19,090.   This is a following-up analysis of our earlier publication, “Hang Seng Index Technical: Potential breakout from channel resistance” dated on 9 June 2023 (click here for a recap). The Hong Kong 33 Index (a proxy for the Hang Seng Index futures) has staged the expected bullish breakout and almost met the first resistance of 20,300 as it rallied by +5% from 9 June to an intraday high of 20,205 last Friday, 16 June in light of a shift in the China central bank, PBoC conservative targeted monetary policy stance to a more accommodating approach as it cut 3 key interest rates within two weeks; 7-day reverse repos, 1-year medium-term lending facility, and the 1-year & 5-year loan prime rates today, 20 June that are being used to price corporates/consumer loans and mortgages respectively. Since Monday, 19 June, the Index has tumbled by -2.4% which seems to have fallen victim to the “buy the rumours, sell on the actual news release” mantra as today’s cut on the loan prime rates have been almost fully priced in.      

Dow Jones Industrial Average (DJIA) has underperformed the S&P 500 and Nasdaq 100 in the past two weeks. Last Friday’s initial bullish price actions of DJIA retreated at 34,630 key range resistance. Minor uptrend from the 10 July 2023 low of 33,595 has shown signs of exhaustion.     Last week’s advance halted at 7-month range resistance     Fig 1:  US Wall St 30 medium-term trend as of 17 Jul 2023 (Source: TradingView, click to enlarge chart) Since the 13 December 2022 high of 34,944, the US Wall St 30 Index (proxy of the Dow Jones Industrial Average futures) has continued to oscillate within a 7-month sideways range configuration. The 3% rally from the 10 July 2023 minor low of 33,595 has been rejected at the 34,640 range resistance for the third time last Friday, 14 July, and confluences with a major descending trendline that capped previous up moves since the 29 March 2022 high.     Short-term momentum has flashed a bullish exhaustion signal     Fig 2:  US Wall St 30 minor short-term trend as of 17 Jul 2023 (Source: TradingView, click to enlarge chart) The hourly RSI oscillator has flashed a bearish divergence signal at its overbought region which suggests that it is likely the upside momentum of the minor short-term uptrend from the 10 July 2023 low of 33,595 has been exhausted which in turn increases the odds of a minor decline. Watch the 34,630 key medium-term pivotal resistance to maintain the short-term bearish bias with near-term support coming in at 34,320. A break below it exposes the next supports at 34,000 and 33,840. However, a clearance above 34,630 sees a potential bullish breakout from the 7-month range with the intermediate resistance coming in at 34,940 in the first step.  

Cleared above 200-day moving average ex-post US CPI. Short-term uptrend but the medium-term trend is still sideways as it remained below a major descending trendline resistance at 0.6930. Short-term momentum, hourly RSI has turned bullish. This is a follow-up analysis of our prior report, “AUD/USD Technical: Bulls rejected at 20 and 200-day moving averages ahead of US CPI” published on 12 July 2023. Click here for a recap.   Above the 200-day moving average but still below a major descending trendline resistance   Fig 1: AUD/USD medium-term trend as of 18 Jul 2023 (Source: TradingView, click to enlarge chart) The AUD/USD has staged the bullish breakout above the 200-day moving average ex-post US CPI data release, rallied by 190 pips from the breakout point triggered last Wednesday, 12 July to last Friday, 14 July intraday high of 0.6895. Overall, the bigger picture major trend of the AUD/USD is still considered sideways as its current rally above the 200-day moving average is still capped by a major descending trendline in place since the 21 February 2021 high now acting as resistance at 0.6930 (see daily chart).   Short-term minor uptrend intact   Fig 2: AUD/USD minor short-term trend as of 18 Jul 2023 (Source: TradingView, click to enlarge chart) The AUD/USD has started to pull back from last Friday, 14 July high, and shed -107 pips to print an intraday low of 0.6787 yesterday, 17 July early US session. Current key elements now suggest that the price actions of AUD/USD may resume the impulsive up move of its ongoing short-term minor uptrend in place since the 29 June 2023 low of 0.6595. Today’s price actions have formed a “higher low” right after a retest on its former minor ascending channel resistance now turns intermediate pull-back support at around 0.6800 (see 1-hour chart). Prior to the formation of the “higher low” in price actions, the hourly RSI has formed a bullish divergence signal near its oversold region which indicates that the downside momentum of the slide in price actions seen from last Friday, 14 July to yesterday, 17 July has waned. Watch the 0.6760 key short-term pivotal support with the next resistances coming in at 0.6890 and 0.6930. On the other hand, a break below 0.6760 negates the bullish tone to expose the next support at 0.6700 (also the 200-day moving average).

Reopened after yesterday’s closure to due typhoon, shed -2% due to negative follow-through from yesterday’s weak China economic data. Short-term minor uptrend from the 7 July 2023 low remains intact. Short-term downside momentum reached oversold condition. One of China’s proxies benchmark stock indices, the Hang Seng Index plummeted today, 18 July at the open and shed -2% intraday at this time of the writing due to a negative follow-through from yesterday’s weak China data (Q2 GDP, retail sales, and youth unemployment) as the Hong Kong stock exchange was shut yesterday due to typhoon. The Hong Kong 33 Index (a proxy for the Hang Seng Index futures) has pierced below its 200-day moving average but so far has managed to hold at the minor ascending trendline support in place since the 7 July 2023 low of 18,222.       Short-term downside momentum may be dissipating   Fig 1: Hong Kong 33 minor short-term trend as of 18 Jul 2023 (Source: TradingView, click to enlarge chart) Short-term downside momentum has reached the oversold region as indicated by the hourly RSI and it is now inching upwards which suggests that downside momentum of the current slide from 14 July 2023 high to today’s 18 July intraday low of 18,947 may have waned. Watch the 18,900 key short-term pivotal support and clearance above the 200-day moving average now acting as an intermediate resistance at 19,245 sees the next resistances coming in at 19,570 and 19.900 (upper boundary of the medium-term range configuration). However, failure to hold above 18,900 damages the minor uptrend to expose the key medium-term support of 18,220/130.

Analyzing Monday's trades: EUR/USD on 30M chart   On Monday, EUR/USD corrected against Friday's correction. As a reminder, on Friday, the pair started an upward movement after breaking the descending trendline three times. Since the upward movement on that day was strong and sharp, a correction was expected, which we saw on the "quiet" Monday.   From a technical standpoint, the pair has been moving in an ideal manner in the last couple of days. The main question now is whether a new short-term uptrend will begin. Take note that in the medium-term perspective, the euro does not have any reason to rise. The short-term uptrend may simply be a correction on higher time frames. Therefore, the euro could still rise. But in the next couple of months, we believe that it should continue its downward movement.   EUR/USD on 5M chart   On Monday, there were two trading signals on the 5-minute chart and volatility was 54 pips, which is very low. It was quite inconvenient to trade due to such low volatility, but we were lucky to get such trading signals, as they turned out to be false only based on the fact that the pair did not reach the nearest target level. However, with such low volatility, it did not make sense to expect it to reach the target level anyway. The price bounced twice from the area of 1.0971-1.0977. In the first case, it moved up by 12 pips, so the trade should not have been closed at the time when the second signal was being formed. In the second case, the pair moved up by 20-25 pips. Beginners could have made such a profit by closing the trade manually closer to the evening.   Trading tips on Tuesday: On the 30M chart, the pair started to correct, but we still expect it to fall since it is significantly overbought in the long term and also lacks significant reasons to enter a new rally. The key levels on the 5M chart are 1.0835, 1.0871, 1.0901-1.0904, 1.0971-1.0977, 1.1038, 1.1091, 1.1132-1.1145, 1.1184, 1.1241, 1.1279-1.1292. A stop loss can be set at a breakeven point as soon as the price moves 15 pips in the right direction. On Tuesday, Germany will release the second estimate of its inflation report for July. In addition to that, Federal Reserve officials will speak. All of these events are considered secondary of importance.   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.  

EUR/USD Yesterday, the euro broke through the key support level at 1.0834. By the end of the day, the euro had risen by 17 points. The nature of this movement suggests that this breakthrough was false. This morning, the price continues to rise above the 1.0865 level. The Marlin oscillator continues its upward turn. Market participants are concerned that tomorrow, Federal Reserve Chairman Jerome Powell will confirm the idea of a strong American economy and hint at another rate hike(possibly by 0.50%).   The concern arises from the fact that seemingly obvious things might be interpreted differently by the Fed itself, implying that there might be no further tightening. Generally, the Jackson Hole conference doesn't discuss specific issues, such as a rate hike in a month or two, so there will be opportunities for speculation in interpreting Powell's words. Considering the increased volatility of the EUR/USD pair, it might reach the target range of 1.0924/42 regardless of the tone set by the Fed chair. The question is about the euro's medium-term perspective.   On the four-hour chart, following the false downward movement, the price returned above the MACD line, and the Marlin oscillator entered the positive territory. An uptrend in the short-term, and the target range of 1.0924/42 is in sight. Consolidating above this range will open up the next target at 1.1012.  

Key elements remain positive that support the ongoing short-term uptrend phase. Watch the key short-term support at 15,930. Next intermediate resistance stands at 16,200. Fig 1: Germany 30 minor short-term trend as of 24 Nov 2023 (Source: TradingView, click to enlarge chart) Since its bullish breakout from its former medium-term descending channel resistance last Tuesday, 14 November, the price actions of the Germany 30 Index (a proxy for the DAX futures) have continued to exhibit positive elements. Oscillating within a short-term uptrend phase since end of October 2023 Firstly, it has continued to oscillate within the upper half of a minor ascending channel in place since the 27 October 2023 low of 14,586.   Secondly, the hourly RSI momentum indicator managed to stage a rebound from key parrel support at the 45 level without any prior bearish divergence condition at its overbought condition which suggests that short-term bullish momentum remains intact. Watch the 15,930 key short-term pivotal support (the median line of the minor ascending channel & minor congestion area of 21/23 November 2023 and a clearance above 16,050 near-term resistance sees the next intermediate resistance coming in at 16,200 (upper boundary of the minor ascending channel & Fibonacci extension cluster. On the flip side, failure to hold at 15,930 negates the bullish tone for a minor corrective decline towards the next intermediate support zone of 15,660/560 (also the 200 and 20-day moving averages).

WTI crude oil has started to evolve into a short-term uptrend phase reinforced by the recent liquidity infusion by China’s central bank, PBoC upcoming 50 bps cut on the RRR. The current 5-day rally of WTI crude oil has reached a key medium-term resistance zone of US$79.00/79.40 with a short-term overbought condition. At the risk of a minor mean reversion decline with intermediate supports at US$75.30 and US$74.80. This is a follow-up analysis of our prior report, “WTI Oil Technical: Sideways within a potential minor bottoming configuration” published on 16 January 2024. Click here for a recap. Benchmark oil prices have bottomed and traded higher since the start of this week as the West Texas Oil (a proxy of WTI crude oil futures) had rallied by +4.9% week-to-date at this time of the writing, its best weekly gain since the 9 October 2023. On top of the rising geopolitical risk premium that is supporting firmer oil prices from the ongoing tensions in the Middle East region and Red Sea shipping route, the additional liquidity infusion from China’s central bank (PBoC) with an upcoming 50 bps cut on commercial banks’ reserve requirement ratio has also triggered an indirect “demand-pull” catalyst on oil prices. CTA funds may have contributed to the current bullish momentum frenzy All in all, these factors have created short-term reflexive positive feedback into the oil market reinforced by possible speculative CTA funds that run on momentum-driven models that piled into oil futures with a bullish bias. The price actions of the benchmark Brent and WTI crude oil have pierced above their respective 50-day moving averages on Monday, 22 January and have capped their prices previously since late October 2023; positive momentum begets positive momentum. At the risk of a minor mean reversion decline below US$78.40 Fig 1:  West Texas Oil medium-term trend as of 26 Jan 2024 (Source: TradingView, click to enlarge chart)   Fig 2:  West Texas Oil minor short-term trend as of 26 Jan 2024 (Source: TradingView, click to enlarge chart) In the lens of technical analysis, the recent push-up of West Texas Oil since the start of this week has led its hourly RSI momentum indicator to hover close to an extremely overbought level of around 74 in place since 12 January 2024. This current overbought condition has also taken form as its price action is now coming close to a key medium-term resistance zone of US$78.00/78.40 (upper boundary of the minor ascending channel from 17 January 2024 low & close to the key 200-day moving average). Therefore, the odds have increased for a potential minor mean reversion decline to retrace a portion of the ongoing short-term uptrend phase with the next intermediate supports coming in at US$75.75/75.30 and US$74.80. On the flip side, clearance above the US$78.40 pivotal resistance invalidates the mean reversion decline scenario for a continuation of the bullish trend towards the next intermediate resistance at US$79.75 in the first step.