The oil-market-crash saga continues and traders are trying to decide what’s the right move under these conditions. The thing is, it’s very tempting to buy oil for around 5 USD per barrel but it’s also a highly risky move and best left to traders who can handle exceptional volatility.
Some traders are jumping in on buying oil and see this as a bargain of a lifetime, but more reasonable traders are taking into account the ripple effect such a big crash can have on the market and they are eyeing other instruments on the market which are presenting trading opportunities thanks to this historic market crash.
If you haven’t figured out these instruments then you’re in luck, because we’re about to highlight the star assets which have showed the most potential since Monday. What we’ll focus on are commodity currencies, these are currencies of countries which heavily depend on oil export and hence are affected by the crash. So, the Russian Ruble, the Mexican Peso and the Canadian Dollar will take the spotlight today.
First let’s look at the USDCAD; the US and Canadian dollar pair has been weakening since the very beginning of 2020 and its bear run lasted until the middle of March. Most recently the pair saw a bearish correction, but that correction seems to be coming to an end. Why do we think so? The price formed an inverse head and shoulders pattern and the neckline has already been broken. As long as the price stays above the neckline, sentiment remains positive.
Next let’s look at the USDMXN; the pair surged in the second half of February, and the situation with oil does not look terrible for the Mexican Peso. In the long term, the price created a head and shoulders pattern and the breakout of the neckline is a potentially positive sign for the Mexican currency.
Lastly, we’ve got the USDRUB; the upswing for this pair started in January. After a small correction in March, the pair is back on an uptrend, which means the Russian currency is weakening against the USD. Sentiment for the pair remains positive.
Some may say that the movement of emerging markets’ currencies is simply because of the effect the coronavirus lockdown has had on the world, and this does play a part, however these movements are magnified by the low prices of oil and the effect this has on export value. For example, as you see on the chart there’s a comparison between the USDMXN and the USDPLN. While the PLN is weaker than the USD, it’s not as weak as the MXN is against the USD, why? Because Mexico is a crude exporter and hence is losing money on its oil exports with such low prices, which is affecting its currency, while Poland which is a crude importer, is paying less for receiving oil, and hence its currency isn’t as affected.
Throwing new instruments in the mix is a great way to look at the market, especially in such volatile times in order to take advantage of the market without incurring unusually high risks.
Today we have an unusual situation on our hands; we’ll be taking a closer at two exotic pairs which have made an impact in the market. Exotic instruments are not often highlighted, but this doesn’t mean they can’t offer great trading opportunities. Let’s get to it.
First, we’ve got the EURPLN which has made a few appearances in our market analysis sessions. Towards the end of February, we were bullish about this pair when the price was finishing the inverse head and shoulders pattern. The price indeed climbed significantly higher breaking all crucial horizontal resistance levels. It more recently bounced from its resistance level turning it into a support level (4.5).
The price had a chance to create a head and shoulders pattern but failed to break the neckline and instead played the triangle scenario and broke the upper line of this formation. Today the pair saw an upswing giving a new buy signal and headed into a positive sentiment.
The next pair is the USDPLN which has also been on the rise the past few weeks. Over the last few days, we saw a correction but now it seems that the correct has ended, that’s because we see a significant bounce on the 38,2% Fibonacci retracement level which was made with a small inverse head and shoulders pattern. As long as the price stays above the neckline and the 38,2% Fibo level, the sentiment will remain positive.
Let’s end this with a quick overview of the SP500; the index once again moved up to test the 38,3% Fibonacci level following a small bullish flag. It’s expected to play the role of a strong resistance again, at which point it can be a good occasion to open new short positions. If the resistance is broken and the bulls manage to get it to close the day above 2640 points, we’ll get a crucial mid-term buy signal.
Yesterday morning, we recorded a video analysis, where we were informing you about the potential buy signal on the DAX, coming from the breakout of the neckline of the inverse head and shoulders pattern. The price broke the neckline, went higher and the DAX saw one of its best days on record. We can’t say we’re surprised.
Wednesday on the European Market started with a small pullback but I guess it’s normal after an upswing like that. The DAX is close to the 10200 points so a 38,2% Fibonacci retracement of the coronacrash. I think that they will not waste this great occasion to test this resistance. In my opinion, the future of this instrument depends on what will happen there. A strong reversal can easily end this relief rally but on the other hand, breakout should attract bulls, looking for bargains on the discounted market.
Can we spot a similar situation in the US? We most definitely can but the scale of the reversal is lower. The Dow Jones also created an inverse head and shoulders pattern and broke the neckline. The thing is that the momentum is not so significant as with its German counterpart. Americans, so far, retraced only slightly more than 23,6% of the coronacrash. A 38,2% line is still far. Nevertheless, as long as we stay above the neckline, the mid-term sentiment remains positive.
Let’s check the sentiment towards the emerging markets currencies, I will use the USDPLN as an example. We can see that sentiment here warms along with the one on the stock market. USDPLN stopped this crazy upswing on its 2016 highs. On the hourly chart, the price is creating a head and shoulders pattern and is trying to break the neckline as we speak. A successful breakout can bring us to areas around 4.12.
Today, we have three great setups, which are quite similar to each other. Quite interestingly, as their correlation is usually not the highest.
Let’s start with the first one – USDCHF, where at the end of the year, the price broke two crucial long-term supports. The first one was the up trendline connecting higher lows since the beginning of 2018 and the second one was the horizontal support around the 0.971 – probably the most important price of the 2019. Breakout of those two, brought us a sell signal and the test of those two as a closest resistance brought us a confirmation. As long, as we stay below the orange line, the sentiment is negative.
As we said before, similar setup can be found on the other instrument – USDCAD. Here, on December, the price broke the long-term up trendline, connecting higher lows since 2017 and other support, almost horizontal one, connecting lowest prices in 2019. Breakout of those two is a negative sign and promotes a further drop. Here, we do have an additional fundamental background coming from the higher prices of Oil and Gold with the CAD being a commodity currency.
Last one something more exotic but also very interesting. EURPLN broke from the long-term symmetric triangle pattern after breaking the dynamic support connecting higher lows since 2015. In addition to that, EURPLN broke the horizontal support around 4.24. With all that, it seems that the polish currency will have a positive 2020.
This article is written by Tomasz Wisniewski, Director of Research and Education at Axiory
EURUSD continues the upswing. Yesterday, we broke the neckline and the upper line of the flag, which triggered a buy signal. Today we do have just a continuation of that. The long-term sentiment is definitely positive but after such a strong upswing there is a chance for a smaller bearish correction aiming at least the 1.1730.
After the huge optimism on Oil that we saw in October, it is now time to relax a little bit and take profits from the recent upswing. After beating the tops from the end of 2016 and beginning of 2017, the price is now testing those levels as a support (grey). So far, we do not see any demand there but the day has not ended yet.
The last one is the exotic USDPLN which recently had two options. They could use the inverse head and shoulders to climb higher or the wedge to go lower. The price broke the lower line of the wedge, which triggers a sell signal here. That is in line with the long-term sentiment present from the beginning of 2017.
Welcome back after a surprisingly calm weekend. The fact that the weekend was uneventful is the main reason why we do have a risk on mode on the market right now. Uneventful in case of the North Korea but also Irma caused fewer damages than expected which perceived positively by traders.
World stocks are at all time highs and German DAX is also heading higher. It looks like the correction has ended and after breaking the 12300 points we are back in the bullish mode again.
EURGBP used the better CPI data from the UK to go lower but bullish troubles started here much earlier, on Friday when the price confirmed the false breakout pattern. That usually is a warm invitation for a strong drop.
USDPLN after year long downswing finally found a good place to start a bullish correction. That is 3,51 and has a potential to start a new bullish wave.