1. Here is the EUR/USD, if the USD Futures chart is Bullish that we would expect the EUR/USD chart to be Bearish. As you can see this is almost a mirror opposite of the USD Futures chart. We have a negative RSI 3 divergence here shown by the Blue Arrows which is very Bearish. We also have a normal Head and shoulders pattern forming which is also very Bearish. Please realize that even though this chart indicates the EUR/USD will drop to the Red support line below at 1.1455 today, there can be counter trend rallies along the way. At the moment the EUR/USD is moving higher but there is significant resistance nearby which should stop the move higher.
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| EUR/USD |
2. Lets begin with the USD futures. There are alot of important points here so if you have any questions please let me know. As I wrote yesterday once the USD Futures broke through the 94.98 level(Pink Line) it signaled the USD Bulls were going to take the USD higher and thus I advised to sell the EUR/USD, GBP/USD and the AUD/USD as well as Gold. Right now we have a positive RSI 3 divergence denoted by the blue arrows which is extremely Bullish for the USD. Also we have an Inverse Head and Shoulders pattern forming shown by the red. Already this morning the USD has run into the red resistance line at its high at 95.50. This chart is extremely Bullish for the USD and says that the USD is headed higher. The neckline of the inverse H&S is the blue line above at 95.68, thus if that level 95.68 is violated to the upside it will trigger the pattern. The measured move would take the USD futures up to around 97.75. This would cause the counter USD currencies to drop significantly. Will update as thing progress.
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| USD Index Futures |
3. Lets move onto Gold....As you know we typically open Gold positions based on what we expect the USD to do going forward. At the moment we expect the USD to rise, as you know as the USD goes up Gold usually declines. As an add on trade based on the USD we advise clients to sell Gold here with the initial targets noted at the upper red lines, first support is at the 1209.75 area with further support at the 1206-1207 area. To add to the bearishness we have for Gold is the Negative RSI 3 divergence noted at the prior high. Notice that even though the price made a higher high the RSI 3 below shows a lower high. This is a negative divergence which is extremely Bearish for Gold moving forward.
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| Gold chart |
4. After a morning fakeout in the EUR/USD to trick retail traders to go long the Euro our initial technical analysis is proving correct. After challenging the upper resistance line the EUR/USD has reversed and is now heading lower. As I have explained numerous times just knowing the direction is not enough, you must also know where to close the trades with the maximal profit. The lower red line is the likely target on this swing lower. Today that line is right at 1.1455. Thus close shorts at 1.1455 and we will wait for the bounce before we sell the EUR/USD again.
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| EUR/USD Chart |
5. Lets take a look at the indicies. At the moment the indicies around the world are being hit hard. I like to use the S&P 500 Index to help predict when the bleeding will stop. As you can see from the chart the S&P has touched support already at the lower red line and is bouncing slightly. This lower red line must hold or there is going to be a lot more downside. The higher red line is the initial resistance on the way back up. If the S&P can get back over the upper red line than the chance for a real reversal is greatly increased. The upper red line is right at 2800, thus the S&P needs to trade back over 2800 in order for all the world indicies to reverse higher.
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| Indicies chart |
6. One question you may be asking is "why is Gold not going down when the USD is going up" This is a very legitimate question and the answer is the equity markets going down causing extreme volatility is causing institutional traders to sell stocks and buy Gold which is considered a flight to safety in times of high volatility. Thus once the indicies stabilize and head higher the reverse will happen and institutional traders will sell Gold and again buy stocks. When this happens we expect Gold to drop sharply.
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| Gold chart 18.10 |
