Market Update 4/2 – GBPUSD and NZDUSD Levels in Focus

Equities ripped higher today, bonds were flat (but still up from the low on 4/19), Bitcoin was up, and gold was up.  Still, the USD ripped higher…again!  Sentiment is dangerously bullish as evidenced by the choice of language being used by journalists.  The language is strong and descriptive.  This is the type of environment that leads to violent reversals.  Preparation is required in order to trade such a reversal.  First, the environment is recognized (check).  Then, a level is identified (working on that below).  Then, a market response is needed (waiting).  Finally, a position is taken (waiting).

DXY DAILY

DXY is trading at 20 year highs after poking above the 2017 high today.  It’s worth noting that EURUSD has yet to take out its 2017 low so a non-confirmation is present.  The next level to pay attention to is the parallel that crosses the 2020 high near 104.70.  The long term chart is below.  By the way, we identified the 2021 low with a parallel from the same structure.  I didn’t stick with the USD bullish view, which was a mistake.  Historically (as in the last 50 years), inflationary periods have been marked by USD weakness (1970s, 2002-2008 and 2008-2011 commodity booms for example) and deflation by USD strength (financial crisis for example).  We’ve had inflation and a commodity boom and…a USD boom.  I’m not sure how this resolves from a bigger picture perspective but a sizable pullback in order to at least relieve momentum readings and reset short term sentiment seems likely.

DXY WEEKLY

SPOT GOLD DAILY

Gold reversed higher from former resistance (November high) after slipping under prior range lows.  This is a spot to take a shot on the long side.  If the low doesn’t hold then the next level for possible support is 1830s, which is the 200 day average and trendline from the 2018 low.

GBPUSD DAILY

GBPUSD tagged the topside of the trendline from the 2015 high.  Again, this line crosses 3 yearly highs.  Daily RSI is below 19.  Prior readings this low over the last 20 years are shown with magenta dots on this chart and the following 2 charts.  The combination of the level and the RSI reading have me on reversal watch.  Stay tuned.

4/27 – GBPUSD is nearing the 61.8% retrace of the rally from the 2020 low at 1.2495.  The top side of the trendline that originates at the 2015 high (blue line) is just below this level near 1.2415.  The next 3 charts highlight when daily RSI is below 21 over the last 20 years.  All instances led to at least interim lows EXCEPT during the financial crisis.  So, unless this is the financial crisis, we should be on the lookout for a reversal.

GBPUSD DAILY

NZDUSD DAILY

Kiwi has also reached a well-defined level.  The 50% retrace of the rally from the 2020 low and March 2020 high are at today’s low.  Reversal evidence is needed in order to plot an entry but this is a ‘good spot’ for a reversal.