FX Indices Analysis for week 27/08/12

USDX

Monthly: Ranging but currently in uptrend.  Price is still stuck under the monthly 200 EMA @ 84.16. Current new candle is now a bearish engulfing candle.

Weekly:  Trend up. A supporting bull trend line is in place. Last week’s candle was a bearish engulfing candle. Price could simply be pausing whilst it forms a bull flag pattern though!

Daily:  Trend up overall but ranging for last few weeks.  Price is trading within a symmetrical triangle pattern. Friday’s candle was a bullish engulfing candle. On the Daily Ichimoku Cloud chart: Price has emerged from within the ‘cloud’.

4hr: Ranging/down/turning? Price has bounced up off the weekly bull trend line that forms the symmetrical triangle pattern. This trend line will be critical this week. It is worth noting that I don’t have a TS signal to Long this index though!

EURX
Monthly:  Trend down. The current monthly candle is looking a bit bullish.

Weekly:  Trend down. As for last week: Price action could either be simply consolidating, after a major low, and about to turn back up OR forming a bear flag! Most confusing!

Daily: Trend overall is down but turning. Price broke up and out from the symmetrical triangle pattern last week and helped to give some TS trends. On the Daily Ichimoku Cloud chart:  Price has moved up to become embedded in the cloud.  This section of cloud is not too dense though so it may not pose too much resistance to further ‘risk on’ movement.

4 hr: Trend ranging upwards. Price meandered upwards but bounced down from the 99 psychological and previous S/R level. I don’t have a TS signal to short this pair.

Thoughts:  4hr TS trends returned late in the week as price on the USDX emerged from the Ichimoku 'Cloud' on the daily charts. This momentum may be short lived though as price on the EURX heads into the 'Cloud' on its daily chart! We also saw both stocks and the USD rise in tandem on Friday. This is out of sync with the usual inverse correlation for these two instruments. This, for me, spells caution for future tracking of the usual ‘risk on/off’ trades against the USD, in the short term at least. The weekly bull trend line on the USDX has held thus far and I’ll be watching this level closely to assess the future market direction in the coming week.

I will look for 'risk on' trades if:

• the USDX breaks below the weekly bull trend line AND if it can hold below the daily Ichimoku USDX Cloud AND IF
•  the EURX returns to being bullish and emerges from the daily Ichimoku Cloud. 

I will look for 'risk off' trades if:

• the USDX returns to being bullish and holds above weekly bull trend line AND if
• the EURX returns to being bearish. There are barriers to further down movement in the form of the 4hr 200 EMA, monthly and weekly pivot though!

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.