Going into last week, we anticipated a pullback, bump and false breakout reversal back into the formation. We entered on the pullback to 114.50, rode the move up, but took no profits. Fear of missing out on a sustained breakout caused me to miss the powerful move back into the formation (and subsequent profits).
Lesson: Play offense, not defense. If fear of missing out on the breakout, set a contingency trade.
Monthly: Neutral; pullback to support at 111.35
Weekly: Bearish (retraced within formation); extended below MA
Daily: Extended below MA, flat MACD
4H: Heavily sold, due for a bullish bounce
Formations: Monthly & Weekly cup and handle formations in tact, threatening break below Monthly MA support.
Week of 2017/03/19
There is very little news expected this week other than lots of Fedspeak, including Chair Yellen on Wednesday. Thursday and Friday are news days. That said, Trump’s budget, which would include the Border Adjusted Tax, is what would move this pair out of the formation. It’s possible that we could be waiting until August for action on the budget.
Most Likely Course of Action (Projection)
From a technical standpoint, we’re right in the middle of the range. The post-Fed move was so aggressive, that we’re left extended on the Weekly and Daily charts, and due for a bounce. Interestingly though, the Weekly MACD is beginning to look like a bearish breakout is forthcoming, perhaps foretelling a lack of action on the budget and punishment for the USD until action is taken.
Given the absence of an opportunity in the middle of the range, we’ll play for a bounce off the bottom of the range and expect support from Chair Yellen on Wednesday. There is a possibility that she could talk the pair into a collapse and break below support. That could get ugly.
Buy limit 112.015, sell stop 111.26, profit target 112.98
- Monday, March 20, 9:17pm
Theresa May, British PM, puts support under the dollar by stating that she will trigger Article 50 on March 29.
- Tuesday’s speakers include New York Fed President William Dudley, who speaks at 6:35 a.m. in London, while Boston Fed President Eric Rosengren speaks in Bali, Indonesia. Kansas City Fed President Esther George speaks on the economy at noon and Cleveland Fed President Loretta Mester speaks at 6 p.m. ET on the outlook and communications. I expect this to provide further support for the USD.
- House Republicans are expected to vote Thursday on the Affordable Care Act’s repeal and replacement. This signals the first of many necessary steps for fiscal reform as directed by the Fed.
- Weekly looks nasty and the Daily doesn’t look enticing for a long position. The 4Hr is oversold and may bounce to resistance at 113.30. If so, I’ll sell because it’s early in the week for a reversal, which usually occurs on Wednesdays. This could rally in time for a Wednesday reversal lower on Chair Yellen’s comments. While political risk is providing some support, Brexit is still another week off which provides time for a full retracement to Monthly support around 111.