FX Indices Analysis for 13/08/12

USDX
Monthly: Ranging but currently in uptrend.  Price is still stuck under the monthly 200 EMA @ 84.16. Current new candle is an indecision ‘spinning top’ candle.

Weekly:  Trend up. A supporting bull trend line is in place.

Daily: Trend up overall but ranging for last few weeks. Friday, and a number of days last week, produced an indecision ‘spinning top’ candle. On the Ichimoku Cloud chart: Price action is still hampered by sitting so close to the Cloud on the daily chart.

4hr: Ranging but down overall. Price is stuck just under a previously strong S/R level. Price is sitting just under the weekly and monthly pivot; the 4hr 200 EMA and the 82.65 level which is the 61.8% fib retrace level from the last major swing high from June 2010.

EURX
Monthly: Trend down. The current new monthly candle has formed an indecision ‘spinning top’ candle.

Weekly: Trend down. Last week’s candle was a bearish engulfing candle.

Daily: Trend down. The daily chart looks like it could be forming a bearish ‘bear flag’ pattern. The bottom trend line will be the one to watch closely. On the Ichimoku Cloud chart:  There is a big Cloud in the way of upward ‘risk on’ price movement on the daily chart.

4 hr: Trend ranging. Price failed to hold above the monthly pivot and 4 hr 200 EMA levels near 98. Price is currently in a down trend and has closed below the weekly pivot now as well.

Thoughts:  Stock markets have traded ‘risk on’ for most of this last week but the same sentiment has not filtered through to the currencies. A lot of this optimism seems to be hinged on the hope of further stimulus. What a conundrum: markets rally because economies are suffering so they’re hoping for another bail out! Anyway, this divergence is ringing some warning bells for me. Also, the fact that price on the USDX is still trading so close to the Ichimoku daily cloud concerns me. Last April was very choppy for 4 hr trend trading and there were similar issues back then when price on the indices was trading close to, or within, the daily cloud charts. There is much less cloud resistance for the indices to trade ‘risk off’ than ‘risk on’ but the ever present hope of further stimulus keeps supporting ‘risk on’.  Further ‘risk on’ sentiment will mean that price will have to fight its way through the clouds on both the USDX and EURX. This may well happen but, if it does, then I suspect that price action on the currencies will be very choppy.

I will look for 'risk on' trades if:

• the USDX holds below the 82.65 area. This is the area of the 4hr 200 EMA, a major previous S/R level, the weekly and monthly pivot and the 61.8 % fib retrace from the last major swing high AND if it can penetrate down through the daily Ichimoku USDX Cloud AND IF
•  the EURX returns to being bullish. 

I will look for 'risk off' trades if:

• the USDX returns to being bullish and breaks, holds and closes above the 82.65 & monthly pivot area AND if
• the EURX remains bearish.

As always, Fundamentals, by way of Euro zone dramas and news announcements, continue to be triggers for price movement on the indices.  These events can always have the potential to undermine all Technical analysis.