Technical Analysis: Weekly Market Strategy
This is the next installment of a weekly, exclusive, series of technical analyses that DeFinity is proud to share with its community.
The analysis is completed by renowned, experienced financial analyst and successful global podcaster, Paul Rodriguez.
Paul Rodriguez lectured at the City University in London on the subject of Technical Analysis whilst working as an award winning analyst at NatWest Global Financial Markets (Now RBS) in the 1990’s, pioneering and promoting the education and use of technical analysis to City professionals and private investors. Paul set up Think Trading to continue that education and consultancy having appeared frequently on financial news channels seeking his views. He set up the State of The Markets Podcast with fund Manager Tim Price three years ago, which consistently tops the top 50 UK business podcasts and has a global audience. He provides bespoke research and consultancy to market-leading firms.
SUMMARY:
Demand destruction has gone from a suggestion on this page to an often repeated phrase in the financial markets. We maintain that interest rate hikes in the USA will be revised lower, but we still need the fundamental catalyst that will ‘panic’ the market into buying US dollars for the final move. For the moment they are still shorting US dollars, which continues to suggest our target at 108 will be hit soon. Whether the market pauses or reverses from there remains to be seen, but with Agricultural commodities collapsing in line with precious and base metals, the evidence of demand destruction is very real. The bond markets have already started edging higher in anticipation of further evidence with prospects for substantial reversal patterns in development — paradoxically, a strong non-farms on 8th July number may be used as an opportunity to sell US dollars, but we will revisit this theme on the other side of the number.
Boris Johnson, the UK prime minister has announced his resignation as I write this. From the perspective of the sterling and the FTSE, this is a non-event. GBP should continue to rise against the Euro towards 1.20 and may even start to rally against the USD in the coming weeks.
Crypto assets continue to consolidate in what look to be continuation patterns. These are ‘make or break’ set-ups that will be confirmed in short order, hopefully by this time next week we should have clarity on whether a major bull trend has begun or one more down-leg is in prospect.
DXY
We continue to explore the possibility that this is the final stages of the US dollar bull trend with long-term targets at 108 coming into focus. A final ‘capitulation’ to the move is needed and it is possible non-farm payrolls on Friday 8th July will provide the catalyst. A sharp rally, followed by a low close would be the characteristic price action to indicate a top of some form is in. Until confirmation is seen, the trend bias will remain bullish.
US 10 Year Yield
Evidence of a top has grown with either a potential ‘double-top’ on a break of 2.70% or a ‘head-and-shoulders’ reversal which would require a rally, but for it to fail ahead of the 3.24% level and then to breach 2.70/77%. Either way, the best of the trend may be over for now as the market looks toward lower long-term rates.
Wheat Futures
Soft commodities have corrected hard in recent weeks and it will be interesting to see if the recent hikes in food prices will be commensurately reversed — however unlikely that might be. The drop in wheat has taken the market into the zone of the main upward trend between 732/777 where buying should emerge. The recent tightness of the market would imply this zone will be used as a buying opportunity initially, but the pace of the downward move implies caution.
Silver
Silver is close to our long-term corrective targets at the 61.8% Fibonacci level. We expect to see support emerge in this zone for a major trend reversal (contingent on a reversal in the US dollar trend). It may take an overshoot towards 18.00 before the main bull trend resumes, but we are tracking reversal signs from now. A one-week close below 18 would imply a deeper correction and a delay to the bullish reversal.
Ethereum
We are still in a consolidation phase awaiting further evidence of either a continuation of the trend (final stage) or the beginning of a new bull trend. Given the market has range-traded since last week, this is encouraging, but not enough to signal a reversal of trend. We are watching the main resistance at 1280 as a break would complete a double bottom — the first bullish signal in a very long time. A decline through 996 would raise the potential for a move towards 808 and then 677. For the moment we have to await the next signal in a neutral capacity until the evidence becomes clearer, which it should be by next week.
Bitcoin Daily
We remain cautious as the consolidation is not enough to signal a reversal of trend and the compressed nature of the price action is normally a signal that the trend will continue downwards (triangular constriction). Unless the pattern is negated by a break of 21,868, the potential for another downward trend will remain. Weakening bond yields are set against the strong US dollar, adding to the balanced position. Despite this, if the trend is to continue, it will do in the next few days and it will be a strong move, else the market will reverse.
Bitcoin Weekly
The ack of conviction in the recent rally is still a concern. We are braced for a potential drop towards 14,715, but note that any lack of decline will reduce the potential on a day-by-day basis. This is because continuation patterns are usually paused and resolved quickly, else the risk reverses.
This report is superficial in nature and may contain errors. No warranty is given to the accuracy of the data or text and any reader must understand that it should not in anyway form part of an investment process — that is reserved for that individual/business and an investment professional. No positions should be taken, exited or otherwise considered on the basis of this research. This is a condition of reading this document. The main function is of education into how different chart patterns might indicate a future trend (or lack thereof) and not for the purposes of speculation or investment.
Transcribed to Medium
Original Technical Analysis provided by
Paul Rodriguez — ThinkTrading.com
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