Many stock and currency markets have been trading in a sideways direction for an extended period of time, some since the beginning of this year. The four-hour chart for the US Dollar Index, below, shows the sideways pattern for the last three months since the middle of January.
When we look at the daily chart below, going back over one year, we can clearly see the bear trend. The last three months’ sideways trading pattern appears to be a consolidation of this negative trend. Confirmation of this came at the end of last week. We topped exactly at the 23.6% Fibonacci resistance, and the more important 13-month downward-sloping trendline, intersecting around the 90.50 area.
Note how the blue 100-day moving average is hovering just above that trendline, adding a further layer of resistance. It would appear this time around that the challenge was just too great as the index heads back towards the middle of the three-month range.
AUD/USD has been trading in a very gently upward-sloping channel for over two years now as you can see in the daily chart below. At the beginning of this month we bounced nicely off important 500-day moving average and double Fibonacci support at 76.40/76.30. This level was just above the more important 27-month rising trendline support.
Now, bulls are faced with an important barrier in the form of the 100 and 200-day moving averages. These have really flattened out in recent months, to reflect the lack of direction in this market over the past year.
NZD/USD has been showing a clear sideways pattern for almost two years. See the daily chart below. A break above the eight-month trendline resistance at 73.80/73.90 allows us to re-test the high for this year at 74.36. But this only gives us a 50-pip profit potential. Obviously, if holding long positions, the profit potential is much greater. That’s if we can beat this year’s high, targeting 74.85, before the high for last year at 75.58.
If we try short positions at the eight-month resistance level we have an initial profit potential of 90 pips. We target the first support level of 72.90/80, before much better support at the 38.2% Fibonacci and 100 and 200-day moving averages at 71.90/71.80. This support level has certainly done the job so far this year, marking the low of the three-month range.
USD/JPY has been trading sideways for the last two months, but is showing an interesting pattern. There is an argument for not just one but two potential inverse head-and-shoulders patterns. I have drawn the necklines in the four-hour chart below.
If I’m right about these patterns and we break above 107.50, we have a measured target at 109.90/110.00. Although, at the pace these markets are moving, it could take two months to get there. If the pair breaks below 106.20 these patterns become less reliable.
EUR/USD is another candidate for the title ‘best sideways market of the year’ as we have held a 400-pip range for the last three months.
The monthly chart really shows why we have been unable to rise any further. Strong resistance from the 100 and 200-month moving averages, intersecting with the longer-term, 38.2% Fibonacci resistance in the low-1.2500 area, has stopped the bulls in their tracks. However, the sideways action in recent months means neither bulls nor bears are winning at this stage.
The four-hour chart for gold clearly shows the sideways channel developing since the beginning of the year. Bulls need a break above the three-month trendline resistance at $1351/53 and then the March high at $1356/57 to start to take control.
But then, as you look further out on the weekly chart for gold, we see there are greater challenges from the three-year trendline at $1361/1362. Bulls will need a clear break above the 2018 high of $1366 and then the 2016 high of $1375 before they can test the 2014 high of $1391/1392. It is only above here that bulls really have longer-term control of the precious metal.
The daily chart for silver shows a triangle pattern as the ranges have decreased over the last year. This message is reinforced with sideways-trending moving averages. More recently, over the past two to three months, the market has held a range of 90 points only.
Around the midpoint of the triangle, we have 100 and 200-day moving averages in the $16.60/$16.75 area. Bulls need to push the price up through the $17 mark to target the 500-day moving average and the one-year upper trendline of the triangle at $17.35/17.45. It will take a break above this year’s high at $17.70 to generate a longer-term buy signal.
Important support comes in the form of the 61.8% Fibonacci, eight-month trendline and 200-month moving average at $16.10/$15.90. We would therefore need to see a sustained break below here. However, we run into further strong support from a 14-year trendline at $15/$14.90.
Technical Analyst & Trader
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