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Calm After the Storm. Before Maybe Too…

·2 min read

Last trading day of the week is a time for a correction on almost all instruments on the market. Traders are trying to catch a breath before facing another, most probably volatile, week on the markets. Those corrections create nice opportunities for short-and midterm traders out there, but are obviously not risk-free. Going against the trend is never a recommended option, so be extra careful, when taking these kinds of trades.

A perfect example of a sweet correction is the USDCAD. Here we see that the USD has been climbing the price ladder from the very first day of 2020. The price managed to touch 2016 highs and this is where the correction started. On an hourly chart, we can see that USDCAD created a handsome head and shoulders formation and already broke its neckline. The price is in sell mode right now but keep in mind that the minimum target for the Head and shoulders pattern was already made, so buyers can be ready for another upswing. Nevertheless, the current short-term sentiment is negative.

The correction stopped on Gold too and the price where it happened isn’t random at all. The XAUUSD stopped precisely on 38,2% Fibonacci of the trend which began at the end of 2015. These are also important lows from the end of 2019. I think that the bounce at this point, can start another bullish wave for the metal.

Lastly a small update on the SP500, where we do have a bounce, however, it doesn’t look like a hardcore reversal. Personally, I don’t believe it’s even good enough for a relief rally, its just a dead cat bounce. The price managed to break the upper line of the pennant and break the mid-term down trendline. It sounds promising but the movement lacks momentum. It’s not how reversals should look like, especially after the cashes that we’ve seen before. The bounce can go as far as the 38,2% Fibonacci but I think it could be too much for weak buyers.

This article was originally posted on FX Empire


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