When major markets go back into correction mode, i.e. trading into the balance zone where they can breathe to make a decision where to go next, there are not many new trends unfolding on a nice long-term trendfollowing timeframe for a while. It’s impossible for significant moves to take place all the time – just imagine what kind of world it would be if the prices of butter, milk and coffee move dozens of % each week.
That’s why with the NQ and SP500, european and asian Indices undecided on a weekly basis, it’ll be tough to catch good moves in these markets. Gladly, there are hundreds of markets out there to trade, we’re not at all limited to just a few of them. I will always monitor 37 different markets, currencies, metals, indices, bonds, to catch any trend that may appear.
Currently the currencies seem pretty volatile, breakouts occur all over the place, some are just caught up in a huge monthly correction (EUR/USD, NZD/USD, AUD/USD), but still moving quite a bit intraday. The USDOLLAR Index on the other hand as I had pointed out before, now seems to fulfill my scenario.
After having traded pretty bullish for the first part of last week, the closing of that week was quite decisive. This market broke through the indicated sell fractal and even closed out the week below that price level of 12000. It is much lower at 11887 currently, and by looking at the price chart it is doubtful if that down-action will be over soon. Even though it won’t be the most stable and robust trend we’ll see in this probably continuous downmove (this market is trading from a trend phase into a correction phase now!), it is likely that it will be of rapid nature down to the next support zone.
The last week supports this, just looking at the price candle on the weekly basis we got a high almost as high as the previous week’s, but a close very much below the fractal sell breakout point. On a daily chart this looks even more devastating, here
you’ll see the USDOLLAR bouncing straight off of the dynamic resistance area (green line) and then closing out the day much lower than the open. Plus, there are two fractals on this timeframe that have been hit in the direction of the new overall market movement.
There don’t seem to be too many bulls left in this game, hitting the next weekly support area shouldn’t be a big problem. However, at this point this market has not established a trend, it is simply correcting in a rapid and disastrous fashion. There are some profits to be made here, however, watch out for your position size and stop policy – as this market turns it’s easy to be caught up in the next bullish move before taking profits.
Involving the USD the FX Pair USD/CAD behaves very similar to the described underlying market phase of the USDOLLAR as of now. Without even blinking USD/CAD dropped through the balance zone and has hit the nearest support area marked by a fractal just last week.
Therefore the USD/CAD most clearly is in a corrective mode, having ended the previous uptrend very quickly. The previous move already showed some divergences and by prices retracing into the balance zone while the uptrend is still going on, is never a good sign of continuous strength to the bullish side.
This has proven to be correct, so now even the Momentum Oscillator has reached 0, not leaving any upside pressure in here. Since we are now even trading below the balance zone on a weekly timeframe, it has to be acknowledged that more downside is absolutely possible. However, support areas along the way will eventually and most likely be one of the price levels where this correction finds its end, before going upwards again. Expecting an ongoing trend in this market though, would be far off from reality.
At least, that is what the charts are suggesting right now. It remains to be seen if the overall uptrend in the USD/CAD is over, and a new move to the downside will be possible later in 2016.