US-China relations and their implications for stocks and the US dollar

In view of the above headline and keeping things succinct, I am of the view that Trumps diplomatic incompetencies and thus his seemingly constant and deliberate faux pas, not to mention his proposed foreign policy on trade with China and Mexico can mean only one thing and that is much higher costs for American businesses. As a result, I believe that the bull market in stocks which, inconsiderate of corrections, since 2008, has had its day and will begin to correct seriously in this quarter, if not then in the next quarter. This is just a view I am forming, it in no way constitutes investment advice or even education, this is a blog, not a bank.

However, in light of the above view I will be looking for significant technical reversal signs in stocks. I received Fidelity‘s 2017 outlook this week and that is bullish on equities, bearish on bonds for the whole of 2017. I guess only one of us can be right on this!

Also, like Jimmy Young, I am now bearish on the US dollar. Dollar rallies are showing a significant possibility of having had their run most major currencies, barring perhaps the loonie (US dollar, Canadian dollar pair) could offer short term opportunities as of next week, in my view, to sell the US dollar.

Here are some possible strategies for trading based on the technical assumptions below each graph and the talking down of the dollar from Trump’s words of last week.

Australian dollar US dollar

Here is the aussie dollar vs US dollar

Been in a strong uptrend for about three weeks now, the aussie gaining ground agains the US dollar and has broken and taken out stops above the most recent swing high on the daily chart. I do not like the fact the stochastic oscillators are overbough at the moment, although I do see the 60% and 100% extensions of the most recent swing down as potential targets. Friday finished indecisive. The only strategy on offer to me, is to either buy on a dip, or wait for a breakout of Friday’s high, so there’s nothing immediate to me there. The bias is long though.

Oil (WTI CFD)

Oil has had a volatile run up from 43.65 early November and is topping out at around 55.80. A stronger close on Friday, but did no close above Wednesday’s high, although penetrated above it during the day. It has nicely ‘turned up’ its 8 simple moving average, and the 20 moving average will continue to turn up on a higher close. There is also a series of higher lows over the last two weeks. I would certainly consider buying the 50% retracement of Friday’s candle, particularly because it is confluent with the 8 SMA. A stop below Friday’s low would require a clear break of the 20SMA to work, similarly a stop below the low of either last week, or the week before. The problem with the wider stops is that for decent risk to reward, that would require taking out the last two major highs of early December (the candle after the gap) and the one mentioned earler.  Clearly oil is making significant swings up and down, I don’t fancy taking a direction on it, except to look at the possible entry mentioned, possibly with a tighter stop based on a lower timeframe.

Great British Pound vs US Dollar (Cable)

Huge day on Tuesday with May’s confident Brexit speech which sounded softer at first with its talk of integration and community in my view. Huge gains were to be made on both this pair and the cross pair pound-yen (GBPJPY) below. There is a bit more steam and room left on the oscillators. The pair was also boosted by Trump’s dollar weakening statements and the inaugural speech which seem to make investors flee the dollar on immediate reaction (and buy anything including gold, euro and pound). Again, I think there is room for a further leg up, but nothing screaming at me right now to buy the pair, mainly due to those looming averages the 40 and 50 SMA in turquoise. A clear break of the high of the Brexit speech day (Tuesday) leaves the upper Bollinger band to contend with and the 200 SMA, technically on this chart, but it would be a new swing upmove clearly in play. Certainly one to watch and again, long bias against the dollar. A possible high risk buy on a break of the two averages and the high 3 weeks ago or so. Not too appetising for me though.

Here is the:

S&P500 index

Here’s where I am thinking the stock market hasn’t much left in it. This view gets annihilated as soon as there is a break higher of course, but it has been flat for about 2 weeks after a limp attempt to go higher, then was attempting to breakdown a few weeks ago. Plenty of bearish divergence on the two oscillators. I won’t sell the index, but given gold’s ascent, I think that stocks ought to follow in the reverse direction, with the start, potentially of a major bear market.

 

USDCAD

This is the best chart of the lot in my view. It is a weekly chart. Taking the trend to be the upward channel for now, there has been a clear break from zone 4 into zone 3 this week using zone channel analysis and a strong bullish reversal candle. Therefore, looking for opportunities to re-enter a long dollar, short Canadian trade on a 30%, 40% or 50% retracement of last week’s candle is a thought, but bearing in mind this is a weekly chart, position sizing managed accordingly to give a stop below the weekly low, or look for something on the daily or H4 chart to work with in this regard.

The second chart shows the retracement levels for entry, namely the 40%, 50% or 60%. It is worth noticing the zone 3 line as well. The lower the retracement chosen, the lower the risk in point terms, yet the lower the chance of actually getting a retrace that far, to that level.

 

 

 

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The strength of the USD against the Canadian dollar this week and revisiting the DAX

The USD has rallied agains the Canadian this week, helped in some part by the FOMC announcements earlier. Here is a M30 technical chart of the pair.

In the last post I mentioned trading the DAX and using trend envelopes, courtesy of my good friend and a legend of a trader, valeofx from the forex-tsd forum aka Hercs.

As a follow on from that trend which was held in place by the M30 trend envelopes. Here is a chart of today’s action.

As can be seen, the trend envelope on the M30 chart (displayed – Mauve line) and its accompanying 21EMA set to high/low/close acted as strong support for a continued rally, which was firmly corrected, possibly due to DAX December options expiry being today.

Today, the price reached and exceed the resistance 1 pivot level (R1), but closed just above it, before a 50+ point sell off. I favour further bullish activity today, since there is a failed hammer reversal (3rd bar in from the right) and indeed the failure shows a 1 bar reversal (2nd bar in from the right has a lower low, but a higher close than the hammer candle). I’m not holding out, but I think it will go up some more before the close of day. NB. This is educated guessing and not investment advice.

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