Tag Archives: Japanese Yen

Cartography Corner – February 2020

J. Brett Freeze and his firm Global Technical Analysis (GTA) provides RIA Pro subscribers Cartography Corner on a monthly basis. Brett’s analysis offers readers a truly unique brand of technical insight and risk framework. We personally rely on Brett’s research to help better gauge market trends, their durability, and support and resistance price levels.

GTA presents their monthly analysis on a wide range of asset classes, indices, and securities. At times the analysis may agree with RIA Pro technical opinions, and other times it will run contrary to our thoughts. Our goal is not to push a single view or opinion, but provide research to help you better understand the markets. Please contact us with any questions or comments.  If you are interested in learning more about GTA’s services, please connect with them through the links provided in the article.

The link below penned by GTA provides a user’s guide and a sample of his analysis.

GTA Users Guide


January 2020 Review

E-Mini S&P 500 Futures

We begin with a review of E-Mini S&P 500 Futures (ESH0) during January 2020. In our January 2020 edition of The Cartography Corner, we wrote the following:

In isolation, monthly support and resistance levels for January are:

  • M4                 3475.00
  • M1                 3353.00
  • M3                 3318.25
  • PMH              3254.00
  • Close             3231.00     
  • M2                 3106.00
  • MTrend        3092.44     
  • PML               3069.50    
  • M5                 2984.00

Active traders can use 3254.00 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Figure 1 below displays the daily price action for January 2020 in a candlestick chart, with support and resistance levels isolated by our methodology represented as dashed lines.  The first four trading sessions of January saw the market price exhibit “choppiness”, reflecting market participants’ indecision as to directional bias.  Early into the fifth trading session, January 8th, the geopolitical event emanating from Iran caused the market price to achieve its low price for the month at 3181.00.  However, by the end of the day, the market price had recovered and settled back above our isolated pivot at PMH: 3254.00.     

Over the following six trading sessions, the market price ascended to our isolated resistance level at M3: 3318.25.  The ensuing four sessions saw the market price lose its upward momentum, straddling either side of M3: 3318.25.  On January 22nd the high price for the month was realized at 3337.50, in between our resistance levels at M3: 3318.25 and M1: 3353.00.

From January 24th through the end of the month, the market price action was dominated by market participants’ reaction-to and anticipation-of the effects of the Wuhan Coronavirus.  The trading sessions of January 24th and 27th saw the market price decline a total of 86.50 points on a settlement basis.  The final four trading sessions were spent with the market price oscillating around our isolated pivot at PMH: 3254.00.

Conservatively, active traders following our analysis had the opportunity to monetize a 1.78% profit.

  

Figure 1:

Japanese Yen Futures

We continue with a review of Japanese Yen Futures (6JH0) during January 2020.  In our January 2020 edition of The Cartography Corner, we wrote the following:

In isolation, monthly support and resistance levels for January are:

  • M4         0.94068
  • M3         0.93445
  • PMH       0.92659
  • Close      0.92455
  • M1           0.92403
  • MTrend   0.92330
  • PML        0.91195           
  • M2         0.91140                       
  • M5           0.89475

Active traders can use 0.92659 as the upside pivot, whereby they maintain a long position above that level.  Active traders can use 0.92330 as the downside pivot, whereby they maintain a flat or short position below that level.

As you read this, recall that we wrote in January that the annual correlation of daily returns between Japanese Yen Futures and E-Mini S&P 500 Futures is -0.53.  January’s price action in those markets were mirror images of one another.

Figure 2 below displays the daily price action for January 2020 in a candlestick chart, with support and resistance levels isolated by our methodology represented as dashed lines.  The first four trading sessions of January saw the market price exhibit “choppiness”, reflecting market participants’ indecision as to directional bias.  Early into the fifth trading session, January 8th, the geopolitical event emanating from Iran caused the market price to achieve its high price for the month at 0.93235.  However, by the end of the day, the market price had recovered and settled back below our isolated downside pivot at MTrend: 0.92330.

Over the following six trading sessions, the market price descended to and settled below, our clustered support levels at PML: 0.91195 and M2: 0.91140.  On January 17th the low price for the month was realized at 0.90935.

From January 18th through the end of the month, the market price action was dominated by market participants’ reaction-to and anticipation-of the effects of the Wuhan Coronavirus.  The market price rallied back to, and settled slightly above, our clustered support levels at MTrend: 0.92330 and M1: 0.92403, now acting as resistance.

Conservatively, active traders following our analysis had the opportunity to monetize a 0.81% profit.

Figure 2:

February 2020 Analysis

E-Mini S&P 500 Futures

We begin by providing a monthly time-period analysis of E-Mini S&P 500 Futures (ESH0).  The same analysis can be completed for any time-period or in aggregate.

Trends:

  • Weekly Trend         3285.17       
  • Daily Trend             3265.61
  • Current Settle         3224.00       
  • Monthly Trend        3180.97       
  • Quarterly Trend      2974.00

In the quarterly time-period, the chart shows that E-Mini S&P 500 Futures have been “Trend Up” for four quarters.  Stepping down one time-period, the monthly chart shows that E-Mini S&P 500 Futures have been “Trend Up” for eight months.  Stepping down to the weekly time-period, the chart shows that E-Mini S&P 500 Futures are in “Consolidation”, after having been “Trend Up” for sixteen weeks.  The relative positioning of the Trend Levels is beginning to lose its bullish posture.

We wrote in January, “The first indication of weakness will be a weekly settlement under Weekly Trend”.  We now have that indication.  The next event that needs to occur to strengthen the case of a possible Trend Reversal is a monthly settlement under Monthly Trend.  As noted above, Monthly Trend for February is at 3180.97.

Astute readers will notice that January’s low coincided with February’s Monthly Trend level.  Hmmm…

Support/Resistance:

In isolation, monthly support and resistance levels for February are:

  • M4                 3605.50
  • M1                 3421.00
  • PMH              3337.50
  • M2                 3292.50
  • Close             3224.00     
  • M3                 3217.00
  • PML               3181.00     
  • MTrend         3180.97     
  • M5                3108.00

Active traders can use 3217.00 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Bitcoin Futures

For the month of February, we focus on Bitcoin Futures.  We provide a monthly time-period analysis of BTG0.  The same analysis can be completed for any time-period or in aggregate.

Trends:

  • Daily Trend           9,489             
  • Current Settle       9,440
  • Quarterly Trend    9,239             
  • Weekly Trend       8,830             
  • Monthly Trend      7,982

As can be seen in the quarterly chart below, Bitcoin is in “Consolidation”.  Stepping down one time-period, the monthly chart shows that Bitcoin is in “Consolidation”, after having been “Trend Down” for five months.  Stepping down to the weekly time-period, the chart shows that Bitcoin has been “Trend Up” for five weeks.

With the weekly, monthly, and quarterly trend levels having quietly slipped beneath the market price, it is worth considering that the rally in Bitcoin that began five weeks ago may be just the beginning of a substantial move higher in price.

Support/Resistance:

In isolation, monthly support and resistance levels for February are:

  • M4         13,070
  • M3         11,670
  • M1         11,520
  • PMH       9,745
  • Close        9,440
  • MTrend   7,982
  • M2         7,300  
  • PML        6,860              
  • M5           5,750

Active traders can use 9,745 as the pivot, whereby they maintain a long position above that level and a flat or short position below it.

Summary

The power of technical analysis is in its ability to reduce multi-dimensional markets into a filtered two-dimensional space of price and time.  Our methodology applies a consistent framework that identifies key measures of trend, distinct levels of support and resistance, and identification of potential trading ranges.  Our methodology can be applied to any security or index, across markets, for which we can attain a reliable price history.  We look forward to bringing you our unique brand of technical analysis and insight into many different markets.  If you are a professional market participant and are open to discovering more, please connect with us.  We are not asking for a subscription; we are asking you to listen.

The “Smart Money” Is Bullish On The Dollar

After a brief post-Presidential election surge in 2016, the U.S. dollar has been in a steady downtrend since early-2017. The dollar’s grind lower has helped to boost non-U.S. currencies as well as commodities prices, which trade inversely with the dollar. Now that the “short-dollar, long everything else” trade has been going on for so long, it has become extremely crowded: the consensus view is that this trade will continue for much longer and even accelerate. On the other hand, the “smart money” are betting heavily on a reversal of this trade, as I will show in this piece.

For the past several months, the U.S. Dollar Index formed a triangle consolidation pattern as it digested the financial market volatility. The index broke out of this triangle pattern today, which is a bullish sign as long as the breakout remains intact (ie., the index remains above the top of the triangle pattern).

USD Daily

The longer-term chart shows how the “smart money” or commercial hedgers (see the green line under chart) have built up a bullish position in the U.S. Dollar Index futures. The last several times the hedgers built similar positions, the Dollar Index has rallied. The dollar’s downtrend since early-2017 has occurred within a channel pattern, and the triangle pattern discussed in the prior chart can be seen within this channel. The Dollar Index needs to break out of both the triangle pattern and the channel pattern in a convincing manner in order to signal the end of the downtrend.USD Weekly

The euro, which trades inversely with the U.S. dollar, formed a similar triangle pattern over the past several months and has broken down from this pattern today. This breakdown is a bearish sign for the euro and a bullish sign for the dollar as long as the euro’s breakdown remains intact (ie., it doesn’t reverse and break back into the triangle pattern).

Euro Daily

The “smart money” or commercial euro futures hedgers have built their largest bearish position in at least a half-decade, which increases the probability of a bearish-euro/bullish-dollar move in the not-too-distant future. The commercial euro futures hedgers have a short position of nearly 200,000 net futures contracts, which is far larger than their relatively bearish position in 2013 and 2014 before the euro weakened sharply against the dollar.

Euro Weekly

The “smart money” or commercial futures hedgers are also bearish on the Japanese yen, which would also be bullish for the dollar if they are proven right. The yen experienced bearish moves the last couple times the commercial hedgers positioned similar to how they are positioned now.Yen Weekly

The “smart money” are currently bearish on the British pound as well and have a strong track record of positioning bearishly ahead of major pound routs over the past half-decade.Pound Weekly

If another wave of dollar strength occurs, it would be very bad news for crude oil and the overall energy sector (crude oil and the dollar trade inversely). The U.S. dollar’s surge in 2014 and 2015 was the trigger for the violent crude oil bust. Even more concerning is the fact that the “smart money” are more bearish on crude oil now than they were immediately before the 2014 oil bust, as I discussed in greater detail last week. While oil’s short-term trend is still up for now and I believe in respecting the trend, there is a very real risk that another violent liquidation sell-off may occur when the trend changes.

WTI Crude Monthly

For now, I believe everyone should keep an eye on the U.S. Dollar Index to see if today’s triangle breakout has legs and if the index can break out of its longer-term channel pattern. While most market participants currently believe that further bearish dollar/bullish commodities action is practically guaranteed, they need to be aware of the tendency for the market to “tip over when everyone gets to one side of the boat.”

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