US$ pullback imminent
We have talked of the long-needed pullback for the US Dollar in the past months after seeing the currency devaluing significantly throughout 2020. The dollar's weakening was primarily due to the vast amount of dollars printed to meet large stimulus packages because of covid-19. The same continued approach for 2021 looks very likely, so we are long term bearish for the USD but are expecting short term strength before the next bearish wave down.
When we look at the technicals on the FXCM US$Index chart, after 300+ days of strong bearish momentum, we are getting indications from the price action that a deeper, needed, weekly pullback is imminent. The weekly chart closed out for the third week, decelerating around the level of 11,650. The daily chart could be forming the right shoulder of an inverse head and shoulders pattern that we typically look for as a reversal trend change pattern after an overextended bearish run. If the right shoulder does form, we will also be creating a higher low, further confirming the bullish trend change on the daily, which will result in a weekly pullback.
The lower time frames are showing price stuck in a range for the last sixteen days. We will need a break out of this range to confirm this bullish thesis, at which point we can put more confidence in playing the move.
The cleanest potential opportunity we are eyeing up this week to play the USD strength bias is AUDUSD. Well overextended bullish run, sat at strong resistance of 0.777, forming a triangle pattern on the daily chart. The 4H is holding an extremely respected trend line, of which we await a break before executing any positions.
JPY strength creating a short-term risk-off environment?
The Japanese Yen had a similar 2020 to the USD, spending most of the year in a bearish trend as investors enjoyed a risk-on environment. We have had our eyes firmly on CADJPY, CHFJPY, EURJPY, and NZDJPY as price action is strongly decelerating at crucial levels and forming trend reversal patterns on the daily timeframes.
Several of these pairs offered great entries last week to get positioned for the JPY to power up and see trend changes on the daily charts. Our favourite opportunity was CADJPY, and after a triple top on the daily chart, forming a triangle pattern, we entered short on the lower time frames.
This position is running in profit, and we have removed 50% of the risk. This week we await a bearish break of the daily pattern. Opportunities on other YEN pairs still remain valid and Jonny will be covering what he needs to see to execute in tonight's live Market Update.
Earnings season is upon us
We are now in earnings season. As Q4 data is released, it will be fascinating to see how markets react. We have already seen 66 S&P 500 member's data, and in the upcoming weeks, we will see how some of the huge tech giants faired Q4 of 2020. We will see earnings for Facebook, Apple, Amazon, and Tesla very soon.
Investors are expecting strong data from these tech giants, and we are seeing hedge funds position themselves, increasing their holdings before the matter. Optimism is high for the tech-heavy Nasdaq 100, despite the technicals showing an overextended bull run. We await to see how markets react to the Q4 earnings data and whether this will be the catalyst for a much-needed pull back or whether stocks will continue to rise.
Commodities - Oil remains overextended and respecting the resistance it is currently sat at. We will be looking for bearish opportunities in the short term until the price pulls back to a place of value.
Equities - Earnings season is upon us. With the majority of major US indexes and sectors at all-time highs, it will be exciting to see how markets respond to released data. We expect data to be good for tech giants that adapted and prospered in the 2020 recession. Technicals are looking overextended for most. At some point, we do expect to see a bearish move. Will the Q4 earnings be the catalyst?
Cryptocurrency - The king of crypto, Bitcoin, has now pulled back c30% to the daily 50EMA, of which it has found support and appears to be gaining bullish momentum once again. The overall market is riding this bullish momentum, so we are filtering through the altcoins for the clearest setups.
'Your mind is your most powerful tool'
To kick off our Member Interview Series in 2021, we recently spoke with a real OG, Kev J. Kev joined us when we launched and as an avid traveler, so naturally, trading appealed to him due to the fact money can be made from anywhere. A story I'm sure most can relate to.
Kev has been trading for four years now, and this year has set a goal to become a full-time trader managing investor money. Kev has an incredibly inspiring story and lots of wisdom to share with others chasing a similar dream. Check out the full interview here.
What's happening this week?
Monday, January 25th, 2021 @ 1pm PT
Market Update with Jonny Godfrey
Wednesday, January 27th, 2021 @ 1pm PT
Market Update with Jonny Godfrey
Thursday, January 28th, 2021 @ 11am PT
Chronicles LIVE with Irek Piekarski
Diamond Access Required
Friday, January 29th, 2021 @ 1pm PT
Insights with Irek Piekarski
All the best for the week ahead and we'll see you in the club!
Jonny Godfrey & the TMC Team