Futures Market Analysis

Euro Forecast

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Commercials last went record short in the Euro currency back on August 25th. Sometimes you see an immediate sell-off and other times it takes weeks to see the market turn. This market went through a two month consolidation period and formed a head and shoulders top. This bearish pattern was confirmed on Tuesday with a close below the neckline. The downside target is around 1.1500. I think we will see prices reach this target, which also contains the 100 DMA and a 261 fib extension of an ABCD pattern formed with the right shoulder. If prices breach the 100 DMA, then I think we could see a move lower down to a volume @ price cluster around 1.1350-1.1250. I would look to sell any rally that tests the H&S top neckline. There is a strong volume @ price cluster just above it along with a downward sloping trend line, the 50 DMA, and the 34 EMA wave. This is a market to watch over the next few weeks.

Is Gold Ready for a Breakout?

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Gold made a bearish engulfing candle on August 7th, which was followed by a severe 3 day sell off. Gold has traded in a sideways range ever since and is forming a symmetrical triangle pattern. The size of the potential breakout is equal the the size of triangle pattern from point 2 to the bottom of the range, which is roughly 140.60 points. We take this distance and apply it the the point it breaks either the downward sloping trend line for an upside breakout or to the the point it breaks the upward sloping trend line for a downside breakout. We would need a close above/below the trend lines for the pattern to be valid. Also, the breakout needs to occur before 9/25, otherwise it gets to far into the apex of triangle. This lowers the probability of the pattern. The big question is whether it breaks to the upside or the downside?

Case for the upside:

  • It has found support at the 50 DMA (yellow) during this consolidation, which is bullish.
  • It has found support inside the 34 EMA wave during this consolidation, which is bullish.
  • It has 8:13:21 EMA alignment, which is bullish.
  • The trend before this consolidation was bullish, which increases the probability of a continuation pattern.

Case for the downside:

  • October is traditionally a seasonal weak period.
  • The lackluster response to the recent FOMC meeting.
  • The most recent benchmark candle, from 8/11, is bearish and acting as stiff resistance.

Conclusion:

Gold looks poised for a breakout and I think the probability favors the upside. This market still has directional bias the the upside. However, let the pattern decide which direction. Whichever way it does go, it should offer a chance to re-enter on a pullback. Options might be a good play here.

Markets To Watch #2

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Last week I mentioned to keep a close eye on the Euro, the US Dollar, and the Swiss Franc for possible corrections.  All three markets made slightly newer highs or lows, but my analysis remains intact.  I still expect reversals in all three.  The biggest question to me is how big will they be?

Let's briefly look at each market.

Euro:

The COT report on the Euro shows large traders holding record long positions, commercials holding record short positions, and the small traders holding record long positions for the 2nd consecutive week.  A bearish engulfing candle also formed on Friday and a possible double top is forming as well.  This pattern is confirmed with a close below 1.17065.  Below this double top neckline is the first area of support between 1.16765 and 1.1659.  This is a cluster of symmetrical Fib retracements since March.  Any move below these levels would suggest a bigger move.  The next expected retracement zone would be between 1.1610 and 1.1440.  This area contains the 34 EMA wave, which often serves as support in bullish trends.  It also contains a bigger symmetrical Fib retracement, the 50 DMA, and the double top target of 1.1484.  Any move lower than this zone would signal a change in the bullish trend.

Swiss Franc:

A possible double top is forming.  This pattern is confirmed with a close below 1.0829.  The first area of support happens before this patterns neckline between 1.0908 and 1.0884.  This is a cluster of symmetrical Fib retracements since March.  Any move below these levels would suggest a bigger move.  The next expected retracement zone would be between 1.0814 and 1.0656.  This area contains the 34 EMA wave, which often serves as support in bullish trends.  It also has the 50 DMA and the monthly S1.  Any move lower than this zone would signal a change in the bullish trend.  It is worth pointing out that the double top target would be below this 2nd zone @ 1.0602.

US Dollar Index:

A bullish high close doji pattern formed last Thursday and Friday.  A possible double bottom pattern is also forming.  This pattern is confirmed with a close above 93.98.  Above this double top neckline is the first area of resistance between 94.22 and 94.595.  This is a cluster of symmetrical Fib retracements since March.  Any move above these levels would suggest a bigger move.  The next expected resistance zone would be between 94.715 and 95.885.  This area contains the 34 EMA wave, which often serves as resistance in bearish trends.  It also contains a bigger symmetrical Fib retracement, the 50 DMA, and the double bottom target of 95.45.  Any move higher than this zone would signal a change in the bearish trend.

 

 

 

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Markets To Watch

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Keep a close eye on the Euro, the US Dollar, and the Swiss Franc futures contracts this week.  All three made huge moves in July without any meaningful corrections.  However, all formed engulfing candle patterns inside Fib reversal zones on Friday.  All three are above 2.50 standard deviations away from the yearly VWAP.  In addition, the COT report on the Euro shows large traders holding record long positions, commercials holding record short positions, and the small traders holding record long positions.  All signs are pointing to a possible correction.

Check out the charts below.  Each will have two retracement zones.  The first zone will contain symmetrical pullbacks from the past 4 months.  If this area does not hold, then the correction will be its biggest since March.  A bigger correction becomes more likely.  The second zone is an area that offers support for the Euro and Swiss Franc with resistance for the US Dollar.  This zone is a big move away from current levels.  However, all would still keep the overall recent trend intact.  So there's a lot of room for these 3 markets to go and still not do major chart damage.

 

SF
EC
DX