Bears Strike Back

The new week begins with a complete risk-off mode in the market. Stock bears have finally caught their breath and their short positions are no longer negative. What’s the reason behind this sharp reversal? It may be the last week’s Federal Open Market Committee (FOMC) meeting. It could also be growing fears about a new COVID wave in China, or it may be the fear of a bursting bubble as 10-year-olds become day traders on the Robin Hood app. There are always factors behind every movement.

But in our analysis the focus isn’t about analyzing the ‘why’ instead we focus on analyzing the ‘what’, as in, what’s happening to the price and where is it heading.

So, with the ‘what’ in mind, let’s take a look at the DAX which started to drop with a head and shoulders pattern. The broken neckline gave the green light for the drop while the broken mid-term up trendline increased the bearish momentum. From that, we can see that 23.6% of the post-corona-reversal has been retraced. In my opinion, as long as the price stays above the 38.2% Fibonacci level, sentiment is bullish. What about a breakout? Well, that can get ugly.

The NZDUSD, which we mentioned last week, referring to its weekly chart, was creating a shooting star on the long-term down trendline. The shooting star pattern developed into a slightly bigger, but also bearish candlestick pattern. The price did indeed bounce from the downtrend line, giving us a very handsome sell signal.

Today we’re finishing up with an update on the EURCAD, which we mentioned at the beginning of June. We’d said that the 1.505 support level looked strong and should help buyers initiate a proper upswing, breaking the upper line of the flag. That’s why I’m not surprised by the fact that the price did exactly that! As long as the price stays above the upper line of the flag, sentiment remains positive.

For a look at all of today’s economic events, check out our economic calendar.