Updated: Nov 4, 2020
A very interesting 24 hours to say the least. In the overnight session the U.S. Dollar broke to the upside as we had expected and risk took a dive, just as we had predicted in our note on Saturday. We were able to book profits on both of our trades, NZD/USD and EUR/USD. We have now gone long on NZD/USD, when you read our notes below, you'll understand why.
Our Short-Term Risk Oscillator is now in oversold territory, while our Long-Term Risk Oscillator is in neutral.
In equities we saw the Dow drop almost 1,000 points before recouping half the losses and closing just over 500 points to the downside. As we always note, Risk is a huge factor in all markets and today was a perfect example of a "Risk-Off" trade. The question for us now is: has too much risk come off in the short-term?
Let's look at some charts for some ideas.
As we noted on Saturday 3,200 area was expected to be support. That is exactly what happened as the index bottomed out around 3,225. It was a nice recovery and based on our short-term risk oscillator entering oversold conditions, we believe the immediate selling could be over as we have a bounce and sideways action over the next 24 hours.
Again, as we noted in our last note, the DXY broke up. However, in keeping with out theme that short term risk is oversold, we expect this index to come back and test that upper line on the wedge. If it holds, then we will establish it as support and consider a long-term bull move is on the way. There is so much going on in U.S. politics that it would be hard to argue a stimulus package is a priority at this time. This could be the driving force for a stronger Dollar.
The AUD/JPY cross, which is a great forecaster of risk behaved as expected in the last 24 hours based on the conditions. Note that this pair held the long-term trend line and bounced off just as the other risk indicators did. This doesn't mean it can't continue to go down, but it provides some information hinting that short-term markets may be ready to bounce back.
This pair, EUR/USD, has touched the bottom of the distribution channel we described in our last note. Long-term we expect it to fall into the 1.1600 area. However, today was a strong move as a result of Dollar advance. We expect this stay within the channel for a couple more days.
As we have noted before, this is a fast moving pair. The chart above shows two things: 1. The short-term trend line is looking to break down as it approaches the long-term trend line and 2. This pair looks to be in a clear bear flag pattern. As such, we expect an eventual resolution of the flag to the downside, any break of the channel draw above and this pair can be shorted.
Have a great evening and thank you for reading.