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Weekly Analysis: Dollar Drops and Volumes Decline in Summer Trading

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Weekly Recap

Asset Current Value Weekly Change
S&P 500 2432 0.25%
DAX 12723 -0.51%
WTI Crude Oil 43.17 -3.75%
GOLD 1258.00 0.18%
Bitcoin 2705 6.23%
EUR/USD 1.1192 0.46%

Escalation

Two geopolitical events caused the biggest waves this week, in an otherwise calm summer period. The world can always count on Donald Trump that he will say, tweet, or sign something that will make people rethink the future of the planet. This time it was a tweet and North Korea, and China a little bit, when the President concluded that China couldn’t fix the Korea problem. We don’t know what exactly Trump means by fixing the problem, but we will most likely have a better idea soon.

WTI Crude Oil, 4-hour Chart Analysis

While the POTUS always starts with a huge claim, then dials his tone down, no such thing is expected from Saudi Arabia and its allies who sent a 10-day ultimatum to Qatar on Friday. The requirements that are hard to imagine to be met in such short notice openly demand cutting ties with Iran and Turkey, if anyone had any doubts who or what is behind the “Qatar-crisis”. Although political escalation usually comes with an almost instant gold-oil long trade, the oil part looks to be failing this time, as the OPEC supply cut is in jeopardy, and the Black Gold is trading near 10-month lows.

Summertime

The strongest trend of the week for stock, and all financial markets was definitely the decline in volumes. The post-Fed burst in the Dollar lost its steam, and the Greenback headed lower towards the end of the week, as the reality of the slowing economy and the falling long-term yields kicked in. Gold should be among the strongest assets in this environment, and sure enough, the precious metal staged an encouraging bounce in the low-volatility period.

The major stock benchmarks were mostly flat, with underperformance in Europe and a convincing-looking bounce in the NASDAQ. Fiat currencies were calm before the potentially important central bank summit next week, while industrial commodities and emerging markets were relatively bullish, especially copper that rallied together with the surprisingly stable Chinese market. The Dollar will likely drive the trends next week as well, although we feel that something interesting will happen in Portugal where Draghi, Yellen, and Kuroda will all be making an appearance.

Dollar Index, 4-Hour Chart Analysis

Cryptocurrencies

The crypto-segment followed the global trends in the low-volatility low-volume paradigm shift, and that is no small feat from the coins following last week’s strong breakdown. The major cryptocurrencies traded flat throughout the week, with Litecoin strongly holding on to its lofty gains, Bitcoin recovering above $2700, and Ethereum surviving a small scare and continuing its consolidation.

Ripple looks to be preparing for a move after a long correction, although the first break-out attempt failed on the night of the Trump-tweet. Ethereum Classic and Dash are still showing strength, but the whole segment seems to be in need for more frustrating sideways action, before a major move, although small cap coins are starting show some signs of life.

Litecoin, 4-Hour Chart Analysis

Economic Numbers

It was a very calm week concerning economic numbers, and the recent negative trend s weren’t that dominant, especially in the US where the housing market actually showed a bit of strength, albeit after several months of disappointments. The European PMIs showed weakness on the other hand, and that coupled with the Euro’s rally pushed local equities lower, despite the progress being made on the Brexit talks. The next week will be much busier on the economic front, and that could shake up the summer conditions, in the markets.

Technical Corner

DAX, 4-hour Chart Analysis

The DAX still looks to be forming a long-term top, despite being inside the long-standing advancing trend channel. The German index still trades around the 12,750 level in a broadening pattern which are, in general, bearish ones. That said, given the low volume environment, more range trading might follow, as the US markets still show strength. A break below 12,650 would likely trigger a move towards 12,500, while the test of the 13,000 level is still in the cards.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday JAPAN PPI Index 2.10% 2.20% 2.10%
Monday US Federal Budget Balance -88.4 bill 182.4 bill 182.4 bill
Tuesday AUSTRALIA Monetary Meeting Minutes
Tuesday AUSTRALIA HPI 2.2% 2.2% 4.1%
Tuesday UK BOE Gov Carney Speaks
Tuesday CANADA Wholesale Sales 1.0% 0.5% 0.9%
Tuesday US Current Account -117 bill -124 bill -112 bill
Wednesday UK Public Sector Credit 6.0 bill 7.3 bill 9.6 bill
Wednesday US Existing Home Sales 5.62 mill 5.54 mill 5.57 mill
Wednesday US Crude Oil Inventories -2.5 mill -1.2mill -1.7 mill
Thursday CANADA Core Retail Sales 1.5% 0.6% -0.2%
Thursday US Initial Jobless Claims 241,000 241,000 237,000
Friday EUROZONE Manufacturing PMI 57.3 59.1 59.5
Friday EUROZONE Services PMI 54.7 55.4 55.4
Friday CANADA CPI Index 0.1% 0.2% 0.4%
Friday US New Home Sales 610,000 569,000 569,000
Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 292 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

US Opens New Front in Trade War as Oil Plunges

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Financial markets are relatively calm today, with most of the major stock benchmarks being virtually unchanged after the weekend. The energy segment is experiencing the most activity as the volatile correction in crude oil prices continues. Besides that, the Euro’s relative strength is notable, but summer trading conditions remain dominant across the board, with low volumes and choppy intraday price action in most of the asset classes.

Shanghai Composite, 4-Hour Chart Analysis

There seems to be no stopping in the global escalation of trade tensions, as amid the Helsinki meeting between Trump and Putin, the US launched an official probe concerning the retaliatory tariffs of its largest trade partners. The move could deepen the standoff not just between the US and China, but the EU and its other allies as well, and global growth is already weakening, so with further trade troubles growth could grind to a halt.

S&P 500 Futures, 4-Hour Chart Analysis

While global stocks are still well off their highs, and Chinese equities remain in bear market territory, the main US indices are holding on to their recent gains, with the Nasdaq being the by far the strongest benchmark globally. The slightly weaker S&P 500 is also trading at a 4-month high despite trade war fears, and as the first earnings reports of the second quarter were slightly better than expected, with Bank of America beating today before the bell, bulls are still in control on Wall Street.

As for economic news, the much awaited US Retail Sales report delivered a small positive surprise, and last month’s figures were also revised higher. The report helped risk assets during the US session, even as the disappointing Chinese Industrial Production number weighed on investors sentiment earlier on.

Dollar Index, 4-Hour Chart Analysis

Despite the bullish numbers, the Dollar lost a bit of ground against its major peers, although forex markets were less active today than recently and the most traded pairs traded in relatively tight ranges after Friday’s hectic session.

Oil Back Below $70 per Barrel as Commodities Remain Weak

WTI Crude Oil, 4-Hour Chart Analysis

Crude oil prices are sharply lower yet again, with the WTI contract leading the way lower as tight short-term supply conditions got better in Canada, and the general weakness in the global commodity segment infected the market oil. The IMF’s report on weakening global growth, and the chatter about the release of some of the global strategic oil reserves also weighed on oil, and the WTI contract is now at $68 per barrel after trading as high as $75 just one week ago.

Copper, 4-Hour Chart Analysis

Elsewhere in the commodity space, it has been a quiet Monday session, with gold drifting slightly lower after a weak rally in early trading, as selling pressure is still apparent among precious metals. Copper, which also has been suffering in recent weeks as Chinese assets got slammed lower, is still consolidating above the strong long-term support zone that we pointed out last week.

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 292 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

Crypto Update: Qtum’s Price Contraction Hints at a Massive Bull Run

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Qtum/Bitcoin (QTUM/BTC) is one of the biggest losers in cryptocurrency investing. It shred more than 76% of its value in seven months when it dropped to 0.001192 on July 12. With such a sharp slide, there’s no denying that the market is deep in bear territory. Nevertheless, long-term investors can find hope in the market’s habit of rallying after a deflating bear run.

In this article, we show how Qtum/Bitcoin uses price contractions and oversold conditions to stage massive rallies.

Falling Wedge in the Last Quarter of 2017

QTUM/BTC was bearish in September, October and November of 2017. The pair traded in a wide range between September to late October 2017 while generating lower highs and lower lows. However, the range got more and more tight until December 14. In three and a half months, the pair created a falling wedge.

2017 Fourth Quarter Daily chart of QTUM/BTC

The pair was able to break out of the pattern on December 15 after it recovered from extreme oversold readings. The selling relief combined with price contraction conspired to ignite a rally that rewarded bottom pickers with over 300% profits in less than a month.

Falling Wedge in the First Quarter of 2018

Gravity also works in financial markets. Often, the case is the greater the rise, the harder the fall.

As QTUM/BTC pulled back from its meteoric rise, the pair created another falling wedge structure on the daily chart. The market plummeted until the trading range was so tightly squeezed that there was no more room to go but up. Again, the market flashed extreme oversold readings before breaking out of the pattern.

2018 First Quarter Daily chart of QTUM/BTC

Falling Wedges in the Third Quarter of 2018

History repeats itself; that’s one of the main principles of technical analysis. So far, QTUM/BTC adheres to that tenet. It appears to be creating a third falling wedge as it respects key support of 0.0012. While doing so, it has recently given off extreme oversold signals.

2018 Third Quarter Daily chart of QTUM/BTC

But wait! There’s more!

A broader and more in-depth look at the daily chart of QTUM/BTC reveals that all three falling wedges mentioned above appear to be parts of a massive falling wedge. What’s astonishing is that the narrowest point of this gigantic falling wedge is at key support of 0.0012.

Daily chart of QTUM/BTC

Based on previous price movements, it is not difficult to imagine that this extreme price contraction can be the catalyst of a massive bull run.

Bottom Line

QTUM/BTC is in deep bear territory. However, history tells us that the pair might be out of the woods real soon. The formation of three falling wedge patterns reveal that the market has a habit of rallying after extreme price contraction. More importantly, the emergence of the large falling wedge on the daily chart suggests that QTUM/BTC may be on the cusp of a massive bull run.

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.7 stars on average, based on 191 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

Crypto Update: Bulls Hold Their Ground as Coins Settle Down

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Trading volumes and volatility declined substantially in the cryptocurrency segment this weekend, as the major coins are trying to hold the key support levels that are just below the current prices. For now, Bitcoin, Ethereum, and Ripple all managed to avoid a break below the June lows and the technical damage is limited among the smaller coins as well, despite the still dangerous setups on the long-term charts.

That said, the general character of the market is still bearish, with high correlations between the majors, and robust resistance levels capping the rally attempts in most cases. With all of those in mind, and given the still active short-term sell signals in our trend model, traders should still not enter new positions here, as a test of the lows is likely in the coming week.

The market is still missing a leadership that could turn the short-term trend around, and the relatively weak coins that have been leading the way lower in the recent period are still not showing signs of strength, despite the occasional short squeeze rallies.

BTC/USD, 4-Hour Chart Analysis

BTC tried to get back above the $6275 support/resistance level several times since falling below it on Thursday but the attempts all failed so far. The coin is still in a clear downtrend, although the previous lows haven’t been tested yet.

From a long-term perspective, a durable break below $5850 would signal a structural bear market, so the coming period will be crucial for the whole segment. Primary support is at $6000, while resistance is ahead at $6500, $6750, $7000, and $7350.

Still No Real Momentum Among Altcoins

ETH/USD, 4-Hour Chart Analysis

The basic setup among the largest altcoins is unchanged similarly to BTC, with Ethereum trading between the $400-$420 support zone and the $450 resistance level since the Monday plunge. The coin is holding up above the June low, and it’s still relatively strong from a longer-term standpoint compared to Bitcoin.

On the contrary, ETH is looking weak short-term, and that also points to the continuation of the declining segment-wide trend. ETH is facing further resistance near $500, while support below $400 is found at $380 and $360.

XRP/USDT, 4-Hour Chart Analysis

Ripple barely managed to avoid a break below the June lows, and the third largest coin remains very weak from a technical standpoint, and strong selling pressure is apparent in its market. The coin should stay above the $0.42 level to avoid major technical damage, and he coming days could be crucial for bulls, with strong resistance ahead around $0.45 and $0.51.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 292 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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