Weekly Market recap 5: Still at the crossroads of the sentiments
Where we are, and "if-thens"
Since the last week, the sentiment hasn't changed too dramatically, looking at the technical picture of DXY, I still see it as a range in a medium-term. Although, DXY crept down, closer to the "orange" line of defence (see the orange long-term trendline). Along with the stabilizing S&P500 index (The stock index has had the classic negative correlation with the DXY since the crash in March), DXY gives me reasons to have a short-term bearish bias, hence likely transition to risk appetite.
If DXY closes below the orange trendline (around 92.2), it will be a strong sign of the beginning of a bearish market in USD. The last line of defence is around 91.7 (Sep 1 low).
On the contrary, if DXY manages to close above the long-term trendline of the downtrend which started in March, I'd consider buying USD. I would need additional confirmations of course, as it is still a range market. Such confirmations may include reaching 94.00 level.
The highlighters of sentiments
A)If we bet on risk
Say DXY would continue the downtrend, and we enter the risk appetite sentiment. What do we short USD against? Let's look at the most common risk duet of AUD and NZD (see the AUDNZD chart). If you zoom out a bit, the first thing you notice is the range, gradually descending channel. It tells us that AUD has been weaker in the long term and it's better to be long NZD in general.
MA(100) is playing the role of the "mean" here. For short-term trading, it's nice to take into account how far the pair is from the mean. A good AUD-short would be after the candle reversal pattern (I marked the last one with the grey area) was formed near the upper border of the channel. Generally speaking, the further AUDNZD from the mean, the clearer it is what to buy to ride the risk appetite sentiment.
B)If we bet on safe-havens
Look at the long-term chart of USDJPY. USD has been pressured since 2015. Therefore I'd prefer going long JPY if risk aversion activates. However, I may still consider buying USD if USDJPY breaks the 5 years descending trendline.
Summing up
Eventually, follow the hints of DXY and then choose the most diverged currencies by their relative strength or weakness. For example, if risk aversion starts, I'd focus on shorting the weakest one (most likely USD) against relatively strongest one (let's say NZD). Adjust it to the short-term sentiments of European currencies and CAD, and you have a road map to find numerous additional setups.
Since the last week, the sentiment hasn't changed too dramatically, looking at the technical picture of DXY, I still see it as a range in a medium-term. Although, DXY crept down, closer to the "orange" line of defence (see the orange long-term trendline). Along with the stabilizing S&P500 index (The stock index has had the classic negative correlation with the DXY since the crash in March), DXY gives me reasons to have a short-term bearish bias, hence likely transition to risk appetite.
If DXY closes below the orange trendline (around 92.2), it will be a strong sign of the beginning of a bearish market in USD. The last line of defence is around 91.7 (Sep 1 low).
On the contrary, if DXY manages to close above the long-term trendline of the downtrend which started in March, I'd consider buying USD. I would need additional confirmations of course, as it is still a range market. Such confirmations may include reaching 94.00 level.
The highlighters of sentiments
A)If we bet on risk
Say DXY would continue the downtrend, and we enter the risk appetite sentiment. What do we short USD against? Let's look at the most common risk duet of AUD and NZD (see the AUDNZD chart). If you zoom out a bit, the first thing you notice is the range, gradually descending channel. It tells us that AUD has been weaker in the long term and it's better to be long NZD in general.
MA(100) is playing the role of the "mean" here. For short-term trading, it's nice to take into account how far the pair is from the mean. A good AUD-short would be after the candle reversal pattern (I marked the last one with the grey area) was formed near the upper border of the channel. Generally speaking, the further AUDNZD from the mean, the clearer it is what to buy to ride the risk appetite sentiment.
B)If we bet on safe-havens
Look at the long-term chart of USDJPY. USD has been pressured since 2015. Therefore I'd prefer going long JPY if risk aversion activates. However, I may still consider buying USD if USDJPY breaks the 5 years descending trendline.
Summing up
Eventually, follow the hints of DXY and then choose the most diverged currencies by their relative strength or weakness. For example, if risk aversion starts, I'd focus on shorting the weakest one (most likely USD) against relatively strongest one (let's say NZD). Adjust it to the short-term sentiments of European currencies and CAD, and you have a road map to find numerous additional setups.