Year End Report 18

Gold 2018 Recap Gold spent the first quarter of 2018 above the 1300 level, posting a high of 1366 in January and 1365 at the beginning of April. By mid-May, the Bears took over, closing the week of the 13th at 1290, crucially below the psychological 1300 level. By mid-June and after several attempted recoveries, the selling resumed and Gold embarked on a two-month Bear trend, eventually flattening with a low of 1160 in mid-August. This selling in Gold coincided with a sustained rally in US equities during the same period, with many institutions releasing margin from precious metals to buy stocks. Throughout September, Gold held in a range between 1180 and 1214. It was at this point that President Trump began an escalation of tariffs against Chinese imports and fears of full-blown trade tensions seemed inevitable. This sparked a turnaround in global stock markets and investors again turned to Gold for protection. This is often referred to as a ‘flight to safety’ strategy, employed during periods of uncertainty. The final quarter of 2018 has seen Gold on the ascendancy with action being centred around 1238, the 38.2 Fibonacci retracement of the big move down that began in earnest during the summer.

Gold Looking Ahead There are positives for Gold as markets head towards the year-end and into 2019. The first positive is that on 4th December, there was a closing price above the 1238 Fib level. This often dictates that there is more than just a bounce underway. The second positive is that Gold is showing a pattern of higher-highs and higher-lows on each swing of the market (arrowed on the chart). This meets Charles Dows conditions for identifying a Bull trend and forms the basis of analysis such as Elliot Wave theory. Technically Gold can withstand a pullback whilst remaining in the Bull trend with the last dip down creating a low at 1211. but for Gold to remain positive going into next year, staying above 1238 by December month-end would be the ideal scenario for the Bulls.

GBPUSD 2018-2019 GBP has endured a tough year with Brexit dominating proceedings. The first quarter saw some volatility but overall, remained positive during this period staying above 1.3711 and even posting a high on 17th April up at 1.4376. The following four months saw relentless selling and by 15th August, Cable had posted a low at 1.2661. At that point, the Relative Strength Index was deep into oversold territory and investors began to cover short positions. A correction began 20th September and GBPUSD traded back up to see a print at 1.3298. This was just shy of 1.3319, the 38.2 Fibonacci retracement of the sell-off that began in April (arrowed on the chart). The failure at this area indicated that the market had undergone a bounce and not a reversal of the overall trend. At October month-end and again at the beginning of December, the Bulls were again defending the 1.2661 area, but on 10th December, this support gave way as Theresa May suffered several defeats in parliament in relation to her Brexit proposal. Just three days later, after touching a low of 1.2476, she survived a vote of no confidence and Cable recovered to the 1.2661 area. Things remain technically weak going into next year, especially in the first quarter leading up to the Brexit deadline on 29th March.

EURGBP2018-2019 This currency pair has seen extreme volatility throughout 2018 with much uncertainty as to which financial region would gain or lose most from the divorce, Eurozone or the UK. 17th April saw the year’s low at .8620 but from then until the 28th August, there was a mostly uninterrupted rally seeing a print on the chart’s up at .9098. Between then and 13th November, action was in the other direction, taking this pair back down to .8655. This Bearish trend was particularly volatile with notable corrections along the way. Even so, the move adhered to Basic Dow Theory that identifies a trend posting lower-highs and lower-lows on each directional swing. Dissatisfaction from MP’s including many in the Conservative Party over the Brexit deal, caused a rally and by Friday 7th December, EURGBP had closed above a key resistance at .8939 (arrowed on the chart). The following Monday there was further buying as Theresa May faced a potential vote of no confidence. This saw the market rally to .9087, just shy of the year’s high at .9098. Once again, this pair has fallen back sharply, giving more importance to this resistance area and it will remain relevant going into 2019.

EURUSD 2018-2019 As Brexit has been generally perceived by the global markets as bad news for both the Eurozone and the UK, USD has made significant gains in this currency pair throughout 2018. As with Cable, the first quarter was relatively stable, trading between 1.2170 and 1.2555. This changed on 26th April when there was a close below 1.2174 (arrowed on the chart). There followed a month of selling EUR and by 29th May, this pair saw a print down at 1.1510. There was then a period of stability, or sideways trading, that lasted until 10th August, where another round of selling saw a new low at 1.1301. On that day, after posting a Hammer Reversal Candle, a bounce began moving the pair up to the 38.2 Fibonacci retracement of the move down (circled on the chart). The failure to retake this level on a closing basis led to another bout of selling. There was a brief defence of 1.1301 on 31st October, but on 12th November, this support gave way seeing the market post a new low for the year at 1.1215. There has since been a modest recovery but not enough for the Bulls to feel confident going into next year.

USDJPY 2018-2019 This currency pair started the year trading circa 113.40, the same approximate current price as 2019 approaches however, the action in between has been extraordinary. The first quarter witnessed heavy selling, moving prices to a low of 104.63 by 25th March. As witnessed on several occasions in recent years, the Bank of Japan intervenes on any approach to the 100.00 level. This is the point where they have indicated their belief that exports would be adversely affected. Between 25th March and 4th October, USDJPY embarked on a relentless Bull run with higher-highs and higher-lows on each price swing of the market (arrowed on the chart). This is the Basic Dow Theory that technicians use for identifying a trend. Since posting a high on that day, up at 114,55, this pattern has been broken. There are a series of lower-highs being shown, but the last dip in the trend at 111.38 remains unbroken. A period of consolidation may be expected entering 2019.

USDCAD 2018-2019 USDCAD started 2018 as it ended 2017, with the Bears firmly in control. This changed at January month-end after posting a low at 1.2249. By 19th March this pair was trading up at 1.3124. The following weeks saw an aggressive correction, slipping back to the 1.2527 area. The Bulls then re-emerged taking it back towards 1.30. During May, there was a strong defence of the 1.2750 area before resuming the Bull run, taking it to a high of 1.3386 on 27th June. The next few months saw the Bears wrest control but as it approached the old support at 1.2750, the Bulls regained control and have taken this pair to a new high for the year at 1.3444 on 6th December. This latest rally held neatly within a Fibonacci channel with the buying petering out at the 61.8 line. The Bulls seem to remain in control as 2019 approaches but there is Bearish divergence showing on the Relative Strength Index. This is when the market makes a new high, but the RSI does not. It is more significant when the RSI is into overbought territory and this does not apply in this instance.

S&P500 2018-2019 Since President Trump’s election, the S&P has been on the ascendency initially touching a high in January 2018 at 2877. There was then a volatile period in which the Bears moved the market back down to the 2500 area. From mid-March, the Bulls regained control and by mid-September, had reached new record highs at 2940 (circled on the chart). At this point there was a warning sign in the form of a Doji. This is when the market opens and closes at precisely the same price, a rare thing on a weekly chart. A Doji represents equilibrium between the buyers and the sellers and is not unilaterally a strong reversal signal however, when coupled with a perfect example of Bearish divergence, there are greater implications. Bearish divergence is when the market posts a new high, as does the Relative Strength Index, taking the indicator into overbought territory then after an initial pullback, the market makes a higher-high, but the RSI does not (arrowed on the chart). The consequence of these conditions was a round of selling taking the price back towards 2600. As 2019 approaches, the S&P is sitting circa a support area and is still above the stronger 2500 Fibonacci level. Although the Bears are currently in control, longer-term picture still favours the Bulls whilst above the 38.2 Fibonacci retracement.

AUSUSD 2018-2019 Between 29th January and 26th October, this currency pair has been in a solid Bear trend with very few corrections or signs of Bullish activity. During this period, the market maintained a steady downwards trajectory of forty-five degrees with only one noticeable attempt at a bounce. This occurred on 10th May around the .7450 area (arrowed on the chart). After touching a high at .7676, the selling resumed and once breached .7450 reverted to the resistance column (circled on the chart). By October month-end, the low for the year had been reached with a print at .7020. Coincidentally, the 38.2 retracement of this whole move also comes in at .7450 which reinforces this major resistance. This pair remains under pressure despite a recent, brief bounce however, the pattern of lower-highs has been broken, indicating the worst may be over.

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