- Silver markets continue to walk trendline
- Uptrend still intact
- Markets await ECB
Silver markets continue to walk along an uptrend line that goes back several months, offering massive support for the precious metal. At this point, the market seems to be waiting for the European Central Bank (ECB) on Friday, which will determine whether there is more monetary policy easing coming out of the European Union. Most traders believe that there will be, but for now the question remains how much, and in what form.
Central banks contribute to strength of metals
Central banks continue to be a major contributor to the strength of precious metals overall, as there has been a massive run higher in gold and silver. In fact, August saw a 15% gain for silver alone. The ECB continues to look very soft, and traders will get some more information during the trading session on Friday, which could be a major market-moving event. Beyond that, the Federal Reserve is also due for another interest rate cut later this month, which should drive precious metals higher over the longer term.
At times, precious metals can be a haven from low interest rates, as a world of more than $17 trillion in negative yielding government bonds has people looking for yield anywhere they can get it. While precious metals don’t necessarily offer that, they do offer the ability to appreciate in value much quicker than bonds. Flows into the precious metals market have been massive as of late.
The various levels that the trading public will be watching include the uptrend line that is now testing the $18.00 level. Obviously, the $18.00 level has attracted a bit of support, as it is a large, round, psychologically significant figure. Ultimately, the uptrend line being broken to the downside could open the door to the gap below, which is closer to the $17.50 level. Concurrently, the 50-day EMA is just above the $70.00 level and racing towards that gap. It is because of that confluence that there could be a lot of buying pressure in that neighborhood.
To the upside, there is a certain amount of interest in the $18.50 level, and then possibly the $19.00 level. The most important level, though, will be the $20.00 level. This is of great importance from a psychological standpoint, as the market has gotten far ahead of itself lately. Markets can’t be parabolic forever, so the pullback makes a certain amount of sense.
Beyond that, the fundamental argument hasn’t changed for the value of silver going higher, so it’s likely that the overall trend should continue higher. In fact, selling silver seems to be anything but an impossibility until, at the very least, the $17 level is broken below. The rest of the year should be good for precious metals, but there will be the occasional massive pullback like the market had offered just a few days ago.
- Silver markets finally discovering gravity
- Overextended market due for a pullback
- Fibonacci levels below make likely targets
- Gap still to be filled down near $17.50
Silver markets have been on fire as of late. That, of course, shouldn’t be breaking news. The market has reached towards the $20.00 level, falling just short. The candlestick for the trading session on Wednesday has been very bearish, even though it ended up being green. After all, the market has formed a shooting star, which is a potential reversal signal. Beyond that, we have also broken below that level during trading on Thursday, which is a sign that perhaps the market is finally coming to terms with gravity. What goes up must come down, and the $20 level above will be a major psychological barrier.
Fibonacci levels to pay attention to
The 38.2% Fibonacci retracement level is sitting at the $17.70 area, and that will be the first target Fibonacci traders will be paying attention to. That’s not to say there isn’t going to be a certain amount of support at the $18.50 level, but the reality is that we still have a large amount of Fibonacci levels that the sellers could push the market to. The 50% Fibonacci retracement level is near the $17.00 level. After that, we could even fall as far as the 61.8% Fibonacci retracement level, which is down at the $16.50 level.
Financial markets hate gaps. They tend to get filled given enough time, and we certainly haven’t filled a major one underneath at this point. It is closer to the $17.50 level, and therefore it would not be a huge surprise to see the market pulled back to that level. Even if it did, that means a level just above the 50% Fibonacci retracement, which would be the garden-variety selling pressure. This would not put an end to the overall trend. Depending on how quickly it came, we could see the market reach that level to test the 50-day EMA, as it is heading towards that direction as well. That would essentially set up a “perfect storm” for buyers to come back in and take advantage of.
At this point, the market has gotten so far ahead of itself that there will be quite a bit of profit-taking. Think of it this way: there are traders out there that have $3.00 worth of profit on each contract. That’s $15,000. They will not want to give up much of those gains as, for several traders and especially retail traders, that could be a huge portion of the gains for the year. The market is overdone, but we do have levels underneath that should attract buyers for the next leg higher.
The alternate scenario is that we turn around and break above the $20.00 level. That would represent essentially a “blow off top”, and we could go much higher in the short term. However, if we see it happen, that would be even more precarious and signal much more in the way of potential downward pressure coming down the line.
- AUD has been oversold
- Continues to make higher lows
- Massive bounce from 0.65
The Australian dollar has rallied a bit during the trading session on Tuesday, reaching towards the highs again over the last couple of weeks. The 0.67 level above could be significant resistance, perhaps standing near the 0.6675 level. This level has been pressed more than once, so it’s very likely that we will continue to see a lot of interest in this market right now. Short-term pullbacks look likely to continue to attract order flow, and it will be interesting to see whether this is a “risk on” move, or simply a relief rally.
The technical structure
The technical structure of this pair is very poor from a longer-term standpoint. However, you could also make a case for a “double bottom” at the 0.65 CHF level underneath, as we have seen quite a bit of a bounce over the last week or so, confirming the previous lows. If we can break out above the 0.6675 level, and perhaps even the 0.67 level, then it would confirm that “double bottom” underneath. It looks like we are going to get that breakout, or perhaps pull back to reach into the potential consolidation.
As such, the daily close will be crucial, and if the daily close reaches above the 0.67 handle, then it’s likely that the market could go as high as 0.69, and possibly even reach the 0.67 level after that. On the other hand, if it pulls back below the bottom of the range for the trading session on Tuesday, then we will probably look towards the 0.6550 region, possibly even the 0.6552 level.
Risk on/risk off
Remember, these two currencies are the polar opposites of the chiller when it comes to risk appetite. People buy the Australian dollar in times of economic certainty, and it shows more of a “risk on” attitude. At the same time, you could say that the “risk off” attitude of global markets has people buying the Swiss franc. As such, it takes one of the perfect setups, such as the GBP/JPY, to show just how global sentiment is functioning. As a result, it will be interesting to see how this plays out, as it could give a “heads up” on several other markets.
Pay note to global stock markets, because if they fall apart it’s likely that this pair should roll over. However, if there is some buying strength out there, it’s likely that the market could go much higher. This would be a great barometer to play the global markets, as there are so many different things out there moving around that could throw this market in either direction. There is a very crucial level just above, so it is worth paying attention to as it could give us a “heads up” for the next 200 points.
- Labor Day marks the end of summer
- Nonfarm payroll comes Friday
Monday is Labor Day in the United States of America, which is traditionally the end of summer. It’s a huge holiday for traders all over the country, and therefore it’s very unlikely that we will see any type of volume coming to futures markets. As far as stock markets are concerned, they are closed. There will be some electronic trading of commodities and the like in various hours, but traders are generally better served to stay out of the market.
Keep in mind that nonfarm payroll comes out on Friday, so this entire week could be a waste in terms of the markets. Volume will be light, and traders will be waiting for the first bit of economic news to come out for the quarter, which of course is the jobs figure. With the Federal Reserve unclear as far as what they are going to do, and the economic picture looking uncertain, it’s going to be a very difficult trading environment.
Light volume causes major issues
Light volume means major issues to market movements, and this could be the theme going forward. There are far too many concerns out there right now to have conviction in any particular direction when it comes to certain markets, obviously with the stock markets kicking most of the money around right now. Bond markets have been on fire, so it’s likely we’ll keep seeing that the market continues to cause issues too.
Second-worst week of the year
The week leading into Labor Day and a few days after it are known as being one of the worst weeks of the year, second only to the week between Christmas and New Year’s Day. As such, it’s very likely that you are going to be better served to take longer-term positions and in small increments. Your discipline is going to be paramount at this point. You will need to be very diligent with your stop losses, and you should expect them to get hit quite often. Eventually, the markets will pick a direction, but until then it’s going to be very difficult to stomach the volatility.
This year seems to be especially bad, as a simple tweet can throw the markets around the world into disarray. Algorithm trading is now the norm and not the exception, and these computer programs tend to simply react to keywords, regardless of what they may actually mean.
With that in mind, several traders will probably be sitting out until the following Monday as there simply isn’t much in the way of conviction right now as seen on the charts. Eventually, though, the volume will come back and traders will start to express their opinion in a more substantive way.
- Bitcoin finding horizontal support
- Friday showing signs of life
- Cryptocurrency on the precipice
Bitcoin has bounced during the trading session on Friday as we continue to see a lot of support just below. The $9250 level is massive support, as indicated on the chart, since the support line that has been so strong over the last several months has held. It will be interesting to see what happens next, as we are at the point of wondering whether or not we are going to continue to see a bullish trend.
Technical factors come into play when it comes to the Bitcoin market. At this point, it’s very likely that we are going to see signs of support in this general vicinity based upon the $9250 level, which offered so much support over the last several months. However, there are other things to pay attention to on the chart that aren’t necessarily positive.
The first thing is the fact that we had broken down below the trend line. That is a very negative sign, but you can also make an argument for not only the horizontal support, but also the 200 day EMA. At this point, if we break down below the $9250 level, it opens up a move lower, down to the $8000 level, as the 200 day EMA is right around that level. To the upside, the red 50 day EMA will also offer resistance right along with the previous uptrend line.
All that being said, even though the technical analysis is all over the place, the reality is that the level we are at has offered plenty of support in the past. So, until it gets broken, one should assume that we are going to see support, especially considering that we have bounced a bit over the last couple of days every time we got close to it.
The fundamental case
The fundamental case for Bitcoin rallying makes sense considering that the world is running away from trouble and fiat currencies. Central banks around the world continue to loosen monetary policy, so at this point it’s foreseeable that Bitcoin will continue to find plenty of buyers. It’s probably only a matter time before the market turns around, reaching towards the 50 day EMA and eventually the $12,000 level, which is the top of the range.
At this point, there is a lot of choppiness. That’s not a huge surprise considering that we are at the end of the summer, which typically shows little in the way of volume. However, in the next week or so, we will start to see more money run into this market and go looking to the upside.
I believe that Bitcoin will continue to find buyers at this point in time. We would have no interest in shorting, although I do recognize that a break down below the $9250 level on a daily chart gives a short-term selling opportunity. At the same time, the 200 day EMA may be even more supportive.
- Japanese yen is a safety currency
- The world is a dangerous place
- Preservation of trading capital crucial
- Multiple reasons fear could enter the markets
As you may or may not know, the Japanese yen is considered to be one of the “safety currencies” in the world. This is because a lot of money is borrowed in Japanese yen to speculate in the markets. For years, the so-called “carry trade” has functioned by borrowing huge amounts of cash in Japanese yen, and then seeking out yield in other markets that offer more. Granted, most interest rates are rather low these days, so the “carry trade” doesn’t quite work as well as it once did. However, markets do flood back to the Japanese yen in times of concern.
Recently, the Japanese yen has been selling off
Over the last several days, we have seen the Japanese yen lose some footing. This was further exacerbated on Thursday as the Chinese have suggested that they aren’t going to escalate the trade war, at least in the short term. This makes sense, because they have all kinds of problems with Hong Kong right now. Beyond that, most Chinese debt is denominated in US dollars, and as the Chinese yuan continues to get hammered, that causes a major problem for the Chinese economy.
With that, we have seen a bit more “risk-taking” in the form of selling Japanese yen. The USD/JPY pair is the place that most people look to for trying to short the yen. We have seen that over the last couple of days, but we are starting to reach towards the ¥107 level above. That is an area that should continue to cause a bit of resistance. Not only has it been resistant recently, and not only do we have the 50 day EMA right there, but we also have other charts that we can look at to facilitate this analysis.
Japanese yen futures
What most of you may not pay attention to – possibly to your detriment – is that there is the futures market for currencies. The Japanese yen futures market is based on where the Japanese yen should go, going forward. When you look at the chart, it’s obvious that the 0.94 USD level has offered both support and resistance lately. This doubles the analysis, and you can see that, clearly, there are buyers in that area. At this point in time, it looks like we may get a little bit more negativity before we bounce again at this level that has been so reliable.
The takeaway is quite simple. After all, the Japanese yen is considered a safety currency. And while the US/China trade war may calm down for the next few days, it’s only a matter of time before something kicks it off again. Brexit also has people nervous and, of course, global growth is slowing down. The Japanese yen will continue to attract order flow.