GroundStone Holdings Morning Newsletter

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Morning Technical Newsletter

EUR/USD:

Over the course of Wednesday’s sessions, the greenback witnessed a resurgence of bidding, lifting the US dollar index above its 95.50 mark and pressuring the euro to lower ground (-0.63%).

Yesterday’s FOMC meeting minutes for September stated all policy makers expressed the view of raising rates by 25bps. On the data front US building permits fell in September at 1.24mln vs. expected 1.27mln. The print triggered a marginal USD decline, though it was not really anything to write home about.

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Morning Technical Newsletter

EUR/USD:


The euro refreshed weekly lows vs. its US counterpart Thursday, despite an earnest attempt to defend its 1.15 handle amid London hours. The resultant rebound in US Treasury yields bolstered the USD market, though the US dollar index remains unable to breach its next upside chart hurdle: 96.000.

Down 0.42% on the day, the H4 candles conquered nearby Quasimodo support at 1.1460 in strong near-full-bodied fashion (now acting resistance), possibly clearing the runway south on this scale towards demand plotted at 1.1394-1.1423. Also worth noting is the RSI indicator is presenting a divergence/oversold reading.

Against the backdrop of intraday flow, the weekly timeframe is seen hovering just north of demand at 1.1312-1.1445. A closer look at price action on the daily timeframe, nevertheless, shows the unit firmly closed beneath its support area at 1.1479-1.1583. Further selling, therefore, could be on the cards towards the August 15 lows of 1.1301/support at 1.1285.



Areas of consideration:



In terms of market structure, the general sense is both H4 and daily timeframes suggest lower prices may be in store, whereas weekly flow indicates a rotation higher.

From a technical standpoint, selling whilst a market is trading nearby weekly demand is chancy. This is not to say H4 price won’t reach its H4 demand mentioned above at 1.1394-1.1423, though we feel it’s a little too early/ambitious to be targeting daily support around 1.1285 right now.


For traders looking to attempt a short at 1.1460 today, waiting for additional candlestick pattern confirmation might be an idea, be it H4 or H1. This will help avoid a fakeout/unnecessary loss; also show seller intent and provide entry/stop parameters.


Today’s data points: FOMC member Bostic speaks

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Education post 7/100 – How to trade ABCD Pattern?

The ABCD pattern (AB=CD) is one of the classic chart patterns which is repeated over and over again. The ABCD pattern shows perfect harmony between price and time and is also referred to as ‘measured moves’. It was developed by Scott Carney and Larry Pesavento after being originally discovered by H.M Gartley.

Within the ABCD patterns, there are 3 types as mentioned below.

Price and Time: Under this type of ABCD pattern the amount of distance and the time it takes for price to travel from A to B is equal to the time and distance from C to D
Classic ABCD: In this pattern, the BC is a retracement of 61.8% – 78.6% of AB, with CD being the extension leg of 127.2% to 161.8% (equal in price distance)
ABCD extension: CD leg is an extension of AB between 127.2% – 161.8%


Trading the ABCD bullish pattern

Swing points A and B form the highest high and the lowest low of the swing leg
When AB is identified, the next step is to plot BC
C must be lower than A and must be the intermediate high after the low point at B
C usually retraces to 61.8% or 78.6% of AB
In strong markets, C can trace only up to 38.2% or up to 50% of AB
Point D must be a new low below point B
CD must be 127.2% or 161.8% of AB or of CD
Buy at point D
Some variations to the rule include:

CD can be an extension of AB anywhere from 1.272% up to 2.00% and even greater
CD leg usually slopes at an angle that is wider than the AB leg
When there is a gap formed after point C, it indicates that the CD leg will be much larger than the AB leg
Appearance of wide range bars near point C is also an indication that CD will be an extended leg
In most cases, AB and CD are equal in time and price
If the CD leg is covered within just a few price bars as compared to the AB leg, then it is an indication that the CD leg will be an extension of AB
The opposite rules apply for bearish ABCD patterns. The chart below illustrates a Buy trade example where we notice that BC retraced close to 61.8% (at 59.4%) after which CD travelled close to 139.6% of the AB leg. After the D point has been identified, a buy order would be place at or above the high of the candle at point D.

Traders should note that the ABCD count should not be confused with the ABC corrective waves from the Elliott Wave count.

 

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Education post 8/100 – How to trade fibonacci retracement?

The first thing you should know about the Fibonacci tool is that it works best when the forex market is trending.

The idea is to go long (or buy) on a retracement at a Fibonacci support level when the market is trending up, and to go short (or sell) on a retracement at a Fibonacci resistance level when the market is trending down.

Finding Fibonacci Retracement Levels
In order to find these Fibonacci retracement levels, you have to find the recent significant Swing Highs and Swings Lows.

Then, for downtrends, click on the Swing High and drag the cursor to the most recent Swing Low.

For uptrends, do the opposite. Click on the Swing Low and drag the cursor to the most recent Swing High.

Got that?

Now, let’s take a look at some examples on how to apply Fibonacci retracements levels to the currency markets.

 

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Morning Technical Newsletter

EUR/USD:
Weekly Gain/Loss: -0.39%

Weekly Close: 1.1512

Weekly perspective:

By way of two back-to-back indecision candles, the top edge of demand at 1.1312-1.1445 remains firmly in the headlights. In the event buyers regain composure from this point, price shows room to extend as far north as a resistance area coming in at 1.1717-1.1862 (capped upside since early June 2018).

According to our technical studies, this timeframe is now considered range bound (yellow zone). Areas outside of this border fall in at the 2018 yearly opening level drawn from 1.2004 and demand marked at 1.1312-1.1445.

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Morning Technical Newsletter

EUR/USD:
Over the course of Monday’s sessions, particularly throughout European hours, the euro surrendered ground to the US dollar (shook hands with its 96.00 mark once again amid risk aversion). Pressured by Italy’s budget situation and Brexit negotiations, price faded nearby H4 resistance plotted at 1.1542 and plowed through the 1.15 handle, which, as you can see, put up little to no fight.

According to our technical studies, longer term, the buyers potentially still have a hand in this fight. The weekly candles are seen cruising around the top edge of a demand at 1.1312-1.1445 and display room to extend as far north as a resistance area coming in at 1.1717-1.1862 (capped upside since early June 2018). In conjunction with weekly flow, daily support at 1.1462 (boasts notable history dating as far back as early 2015) is clearly a watched level on this timeframe at the moment. Although appearing fragile, scope for a rotation higher from here is still possible, targeting the 1.1621 October 16 high followed by resistance at 1.1723 (sited within the lower range of the noted weekly resistance area).

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Morning Technical Newsletter

EUR/USD:
The single currency withdrew from highs of 1.1493 Tuesday, as the European Commission, the EU’s executive arm, told populist lawmakers in Italy it must make revisions to its draft budget proposal. Despite this, little change to the overall technical structure of this market was observed.

Longer term, buyers and sellers continue to battle for position around the top edge of a weekly demand at 1.1312-1.1445 and display room to extend as far north as a weekly resistance area coming in at 1.1717-1.1862 (capped upside since early June 2018). Technically speaking, this is considered a range bound market on this timeframe (yellow zone).

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Morning Technical Newsletter

EUR/USD:
Undermined by Italian budget concerns and a slew of disappointing flash Eurozone PMIs, the shared currency plowed lower against its US counterpart Wednesday, down 0.68%. After the EU took unprecedented action in rejecting Italy’s 2019 budget, finance minister Tria continued the nation’s confrontational and defiant stance against the EU, stating the budget is correct and sees no reason to present the EU with a new one.

Longer term, weekly movement is searching for bidders within the walls of demand at 1.1312-1.1445. Failure to support this area may result in the unit eventually shaking hands with demand plotted at 1.1119-1.1212. In terms of daily structure, support at 1.1462 – a level which boasts notable history dating as far back as early 2015 – was engulfed yesterday (now acting resistance) in strong fashion. According to this timeframe, the pathway south is now potentially clear for a run towards the 1.1301 August 15 low, followed closely by support sited at 1.1285.

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Morning Technical Newsletter

EUR/USD

The slaughter continues with anything not labeled “USD.” We’ve broken pretty significant support in the EUR/USD pair, but there is significant support just underneath as well. I think the 1.13 level which acted as such support during the last meltdown should hold, unless of course something deteriorates rapidly. I think we are starting to get a bit overdone when it comes to the panic, as this is not 2008. Certain algorithmic programs will eventually kick in and start picking up things that are either overbought or oversold. Pay attention to bond yields in America, that’s probably the biggest driver of this in the future. I would anticipate some type of bounce, but I would also be very cautious about it. I think both the Euro and the Pound are just about untradeable.

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How to trade double top pattern?

The double top pattern is one of the most common technical patterns used by Forex traders. It’s certainly one of my go-to methods of identifying a potential top.

Just as the name implies, this price action pattern involves the formation of two highs at a critical resistance level. The idea that the market was rejected from this level not once, but twice, is an indication that the level is likely to hold.

However, as simple as that may sound, there are a few critical things that must be present for this topping pattern to be useful (and profitable).

By the time you finish with this lesson, you will know exactly how to identify a double top as well as how to enter and exit the pattern to maximize profits.

 

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How to trade double bottom pattern?

Double Bottom
The double bottom is also a trend reversal formation, but this time we are looking to go long instead of short.

These formations occur after extended downtrends when two valleys or “bottoms” have been formed.

You can see from the chart above that after the previous downtrend, the price formed two valleys because it wasn’t able to go below a certain level.

Notice how the second bottom wasn’t able to significantly break the first bottom.

This is a sign that the selling pressure is about finished, and that a reversal is about to occur.

The price broke the neckline and made a nice move up.

See how the price jumped by almost the same height as that of the double bottom formation?

Remember, just like double tops, double bottoms are also trend reversal formations.

You’ll want to look for these after a strong downtrend.

 

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Morning Technical Newsletter

EUR/USD
The dollar was higher on Monday against its primary trading partners as investors remained committed to the safe-haven currency after a massive global equity selloff at the end of last week. The selloff was prompted by concerns about geopolitical unrest, the continuing trade war between China and the United States and shaky corporate earnings reports. The dollar traded near a ten-week high while the dollar index gained 0.11 percent by the mid-afternoon on Monday. The dollar index was trading at 96.47 .DXY as of 1:59 p.m. HK/SIN after hitting a high of 96.860 on Friday, its highest level since mid-August. The rising dollar has been cited as a reason for the global equity selloff, with the widening gap between the dollar and foreign currencies making it difficult for U.S. companies to sell their products overseas. Investors remain concerned about the strong dollar despite a run of solid earnings reports and stable profit growth.

The greenback gained 0.04 percent against the yen to trade at 111.93. It was up 0.02 percent against the British pound, and it rose 0.04 percent against the Canadian dollar. Only the Australian dollar bucked the trend, trading 0.06 percent higher against the dollar on Monday.

Commodities Movements
Oil prices were broadly lower on Monday, with U.S. WTI futures down 0.37 percent to $67.34 per barrel and Brent crude futures down 0.32 percent to $77.37 per barrel. The commodity was under pressure after last week’s selloff prompted investors to worry that an economic slowdown would reduce demand and constrict oil prices further. Also pressuring oil markets is the upcoming implementation of U.S. sanctions against Iranian crude exports which are set to start next week.

Gold prices were flat on Monday, trading at $1,235.90 per ounce.

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Morning Technical Newsletter

Pound Higher but Brexit Worries Remain

The Pound Sterling edged higher but remains within striking distance of the recently struck 2-month trough as FX players await the annual budget speech from the British Finance Minister. Analysts believe that Philip Hammond will take the opportunity to encourage support for Theresa May’s Brexit plan in order to ensure that the UK economy is able to withstand the easing of austerity restrictions. Hammond will say that the move toward higher spending, a welcome sight after years of public service reductions, will only come with assurances that a Brexit agreement is reached.



As reported at 11:41 am (BST) in London, the GBP/USD was trading at $1.2837, a gain of 0.06%; the pair has ranged from a low of $1.2806 to $1.2843. The EUR/GBP is trading at 0.88862 Pence, down 0.03%; the pair moved off the session low of 0.88695 Pence while the high for the trading day was recorded at 0.89000 Pence.



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Morning Technical Newsletter

U.S. Dollar Hits 16-Month High

The U.S. dollar index hit a 16-month high on Wednesday after the Bank of Japan announced that it would be keeping monetary policy steady. Japan’s central bank also announced that it would cut its price forecasts, and it kept short-term interest rates at a target of minus 0.1 percent. The announcement confirmed market expectations that the BOJ will keep its extensive economic stimulus program going. The dollar index hit a 16-month high of 97.06 .DXY before easing slightly to 97.04 .DXY, where it was trading as of 1:57 p.m. HK/SIN.

The dollar gained against the yen, up 0.15 percent in the mid-afternoon to 113.25. It was up 0.17 percent against the Canadian dollar, to trade at 1.3127. The dollar was strengthened by continued concerns over the euro as well as U.S. consumer confidence which hit an 18-year high in October. The U.S. economy slowed less than expected in Q3, while the EU economy grew less than expected, shaking investor confidence in the region and the common currency. The euro was down 0.04 percent against the dollar on Wednesday afternoon. Also pressuring the euro was German Chancellor Angela Merkel’s announcement that she will be stepping down in 2021.

Stock Markets Crawl Back

Global stock markets bounced back on Tuesday and Wednesday, with Wall Street’s three major indexes all closing higher. The Dow Jones Industrial Average closed up 1.77 percent, the S&P 500 closed up 1.57 percent and the NASDAQ was 1.58 percent higher. The positive turn inspired Asian markets which were broadly higher. Japan’s Nikkei 225 was up 1.94 percent in the mid-afternoon, the Shanghai Composite was up 1.64 percent and the Shenzhen Composite was up 1.49 percent. Hong Kong’s Hang Seng index was also up over 1 percent.
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New Month, New Optimism?
Asian markets were broadly higher on Thursday after a second consecutive day of impressive gains on Wall Street and a solid run of earnings reports restored investor confidence. Hong Kong’s Hang Seng Index led the gains in Asia, heading 1.84 percent higher as of 2:07 p.m. HK/SIN. The Shenzhen Composite was up 1.31 percent while the Shanghai Composite managed to rain 0.53 percent. South Korea’s Kospi and Australia’s ASX 200 were both up 0.17 percent. Only Japan’s Nikkei 225 bucked the trend, easing 1.12 percent by the mid-afternoon.

On Wednesday, the NASDAQ closed just over 2 percent higher. The Dow Jones Industrial Average closed 0.97 percent higher. The S&P 500 ended the day 1.09 percent higher. The recent volatility in the U.S. stock markets has caused traders to ponder whether the recent dips were just a (long-expected) correction, or whether the selloffs were the start of an impending bear market. Despite several days of recovery, October was still difficult for the U.S. stock markets. The S&P 500 erased 1.91 trillion of value in October, reports CNBC, with the losses spreading across all industry sectors. The month was the worst month for the index since September 2011. There is hope however- October is known for being a historically volatile month, and many traders have renewed optimism that the recent movements were cyclical rather than a true sign of market sentiment.

Currency Movements
On the currency markets, the dollar index eased after several days of strong gains, falling 0.25 percent to 96.89 .DXY. The dollar was pressured by a steep gain for the pound, which was trading 0.60 percent higher against the greenback in the mid-afternoon in Asia, to $1.2843. The pound jumped following reports that UK Prime Minister Theresa May has struck a deal relating to financial services with Brussels, after months of struggling with the issue.

The dollar also declined slightly against the yen, trading down 0.11 percent to 112.81. IT was down 0.07 percent against the Canadian dollar.

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Morning Technical Newsletter

Morning Technical Newsletter

Pound Lifted by Agreement Promise

The Pound rallied against the US Dollar by more than 1% after one official from the British government said that they were very close to signing off on an agreement which would provide financial services companies in the UK basic access to the E.U. Marketplace. Concern over how the government could finance its deficit had been a major concern for financial market players and this news provided a solid lift for Sterling bulls. The financial services market plays a significant role in the economy in Britain.

As reported at 11:41 am (BST) in London, the*GBP/USD*was trading higher at $1.29, a gain of 0.84% and off the session peak of $1.2920; the low for the trading day was recorded at $1.2765. The*EUR/GBP*was trading at 0.88358 Pence, down 0.25%; the pair has ranged from a low of 0.88054 Pence to a high of 0.88635 Pence.

Strategist Calls for Caution

Market player's concern for the UK's current account deficit is because it is one of the highest among its peers at almost 4% of the country's GDP. Today's gains follow yesterday's support for the Pound after the Brexit minister said he believed a deal would be thrashed out by November 21. Though Dominic Raab offered up a specific date, the government did come back to state that no exact time frame for an agreement had been set. One currency strategist in London also expressed wariness, noting that the Parliament must ratify any agreement first and with that uncertainty it's too soon to celebrate.

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Education post 11/100 – How to trade downside channel pattern?

If we take this trend line theory one step further and draw a parallel line at the same angle of the uptrend or downtrend, we will have created a channel.

No, we’re not talking about ESPN, National Geographic Channel or Cartoon Network.

Still, this doesn’t mean that you should walk away like it’s a commercial break- channels can be just as exciting to watch as Game of Thrones or Keeping Up with the Kardashians!

Channels are just another tool in technical analysis which can be used to determine good places to buy or sell.

Both the tops and bottoms of channels represent potential areas of support or resistance.

To create an up (ascending) channel, simply draw a parallel line at the same angle as an uptrend line and then move that line to position where it touches the most recent peak. This should be done at the same time you create the trend line.

To create a down (descending) channel, simply draw a parallel line at the same angle as the downtrend line and then move that line to a position where it touches the most recent valley. This should be done at the same time you create the trend line.When prices hit the LOWER trend line, this may be used as a buying area.

When prices hit the UPPER trend line, this may be used as a selling area.

Types of channels
There are three types of channels:

Ascending channel (higher highs and higher lows)
Descending channel (lower highs and lower lows)
Horizontal channel (ranging)
Important things to remember about drawing trend lines:
When constructing a channel, both trend lines must be parallel to each other.

Generally, the bottom of channel is considered a buy zone while the top of channel is considered a sell zone.Like in drawing trend lines, DO NOT EVER force the price to the channels that you draw!

A channel boundary that is sloping at one angle while the corresponding channel boundary is sloping at another is not correct and could lead to bad trades.

 

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How to trade hidden divergence?

Hidden Divergence

First at all let’s check how MACD hidden divergence looks:

We covered regular divergences in the previous lesson, now let’s discuss what hidden divergences are.

Divergences not only signal a potential trend reversal; they can also be used as a possible sign for a trend continuation (price continues to move in its current direction).

Always remember, the trend is your friend, so whenever you can get a signal that the trend will continue, then good for you!

Hidden bullish divergence happens when price is making a higher low (HL), but the oscillator is showing a lower low (LL).

Hidden Bullish Divergence
This can be seen when the pair is in a UPTREND.

Once price makes a higher low (HL), look and see if the oscillator does the same.

If it doesn’t and makes a lower low (LL), then we’ve got some hidden divergence in our hands.

Hidden Bullish Divergence

Hidden Bearish Divergence
Lastly, we’ve got hidden bearish divergence.

This occurs when price makes a lower high (LH), but the oscillator is making a higher high (HH).

By now you’ve probably guessed that this occurs in a DOWNTREND.

When you see hidden bearish divergence, chances are that the pair will continue to shoot lower and continue the downtrend.

Hidden Bearish Divergence

Let’s recap what you’ve learned so far about hidden divergence.

If you’re a trend follower, then you should dedicate some time to spot some hidden divergence.

If you do happen to spot it, it can help you jump in the trend early.

Sounds good, yes?

Keep in mind that regular divergences are possible signals for trend reversals while hidden divergences signal trend continuation.

Regular divergences = signal possible trend reversal
Hidden divergences = signal possible trend continuation

 

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Morning Technical Newsletter

Morning Technical Newsletter

News of Customs Arrangement Lifts Pound

The Pound Sterling moved higher against the US Dollar after a report in the UK Sunday Times said that the British government was close to striking a Brexit deal, which would include a customs arrangement for all UK borders. Given the March 29, 2019 deadline as the official date by which Britain leaves the European Union, investors were more than anxious that there was no advancements on the customs front over these past several months, which weighed heavily on the Pound which has suffered a loss of about 3.6% against the greenback. The latest news pushed Sterling to 10-day peak against the Dollar but it also strengthened against the Euro.

As reported at 11:32 am (GMT) in London, the GBP/USD was trading at $1.30, a gain of 0.26% and off the session peak of $1.3061; the low was recorded at $1.2970. The EUR/GBP was trading at 0.87416 Pence, down 0.41%; the pair has ranged from a low of 0.87340 Pence to a peak of 0.87740 Pence.

Optimism Should be Guarded

The Pound is also getting support from last week’s Bank of England policy meeting. The Monetary Policy Committee indicated that it would consider a more normalizing policy, in other words, moving toward a higher interest rate environment, provided that the UK government had a deal in place with the EU which ensured a smooth transition. Analysts point out that investor optimism should be guarded, however, given that the UK Parliament still needs to approve the proposals.

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Morning Technical Newsletter

Morning Technical Newsletter

All Eyes on Midterm Elections

The midterm elections that are slated to be held in the United States today will have dramatic ramifications on the country’s politics, as well as on the global markets. Four hundred and thirty-five seats in the House of Representatives will be available and thirty-five slots in the Senate will also be voted upon. The outcome will determine if President Trump’s Republican party will maintain a majority, which would make it easier for him to implement his proposed legislation (especially about healthcare, trade, taxes, and immigration issues), or whether the Democrats will take control of Congress, giving the president substantial opposition.

The markets have already reacted to pre-election predictions, with polls showing a strong turnout for democrats which will alter the current government makeup. U.S. stock markets endured a rocky October, but analysts expect a strong rebound if the Republicans manage to maintain control in the midterm elections. According to a report published by CNBC, the odds of the Republicans losing control of both the House and the Senate are just 10 percent. According to Reuters, the Democrats are expected to take control of the House while the Republicans are expected to maintain control of the Senate.

Asian shares were mixed on Tuesday, with the Nikkei 225 gaining 1.14 percent as of 4:03 p.m. HK/SIN and Hong Kong’s Hang Seng Index gaining 0.56 percent. Both the Shanghai Composite and the Shenzhen Composite were down, trading 0.23 percent and 0.49 percent lower respectively.

On the oil markets, U.S. WTI futures were down 0.33 percent to $62.89 per barrel and Brent crude futures were down 0.59 percent per barrel, sliding further away from the four-year highs hit in early October, despite the implementation of new sanctions against Iran that went into effect yesterday.

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