August 30, 2021 15:40:19
After major risk events, it always pays to step back and look at longer timeframe charts to see how meaningful price action is and where prices could head over the long-term. Using timeframe analysis also then potentially shows us more meaningful price patterns.
We can see the weekly DXY chart printed dark cloud cover after Fed Chair Powell’s dovish speech on Friday. This reversal pattern is where a down candle opens above the close of a prior up candle and then closes below the midpoint of the up candle. This can be significant as it shows a shift in momentum from the upside to the downside.
Both candles are relatively large which shows strong participation by traders and means the pattern is typically more meaningful. The pattern has also occurred after a bullish uptrend so ticks another box for dark cloud cover. Key to this pattern going forward is to see if this week’s candle also shows falling prices. A further price decline following last week’s bearish candle usually confirms the pattern.
The daily DXY chart shows that a bearish outside reversal day candle printed on Friday. This daily price action had a higher high and a lower low than the previous day. The two price bars are moving in opposite directions, hence it is a reversal signal. It is also notable that Friday’s candlestick, the second bar, has a longer body, that is the difference between the open and close. This shows greater conviction on the part of the sellers.
After making new highs a couple of weeks ago at 93.72, prices have failed to stay above the previous cycle high at 93.43. Bearish momentum has taken the index to trend support from the June lows and we currently trade at 92.67, just above the 50-day SMA. A strong breakdown here, in line with the bearish candles will challenge mid-August lows at 92.47/8 and then 91.78 which is the month low from earlier in August. If trendline support holds, the 93.19 zone offers first resistance where prices failed last week and on several other occasions over the last few weeks.
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