Saturday, October 6, 2012

FX Indices Review for 08/10/12

USDX
Monthly: Ranging but currently down.
  
Weekly:  Trend up overall. Last week’s candle was a bearish engulfing candle though after two bullish weeks.

Daily:  Down overall.  Price has broken down from the bearish wedge pattern. Friday’s candle was an indecision Doji though.

Daily Ichimoku Cloud chart: Price is still trading below the Cloud and is also now back below the Tenkan –sen line. Note though how price is much closer to the Cloud.

4hr: Trend up overall but has turned. Price is trading below the bearish wedge pattern that it broke down from on Thursday.

4hr Ichimoku Cloud chart: Price is below the Cloud. This is now in alignment with the orientation of the USDX on the Daily Ichimoku chart.

EURX
Monthly: Trend down but has turned back up. August and September candles were bullish. October, although only one week in, is also a bullish candle.

Weekly:  Trend down but turning back up. Price has now closed back above the weekly bear trend line that has been in play since May last year. Last week’s candle was a bullish engulfing candle.

Daily: Trend up overall. Price broke out and up from the bullish descending wedge pattern on Monday and has rallied since then. Price has also now closed and held above the daily 200 EMA.

Daily Ichimoku Cloud chart: Price has been out of the Ichimoku daily cloud now for 3 weeks and has crossed back above both the Tenkan and Kijun –sen lines. Note, though, how the Cloud is rising and getting closer to price.

4 hr: Trend up all last week. Price has traded up all week after breaking out of the bullish descending wedge pattern and price is now also above the previous broken trend line from the weekly chart and also above the daily 200 EMA. 

4hr Ichimoku Cloud chart: Price is now trading back above the Cloud on the 4hr chart. This is now in alignment with the orientation of the EURX on the Daily Ichimoku chart.

Thoughts:  I have more signs that are bullish for ‘risk on’ than for ‘risk off’ this week although there are some warning lights flashing at me. Price broke down from a bearish wedge on the USDX and up from a bullish wedge on the EURX. I also now have alignment between the daily and 4hr Ichimoku charts for both indices. I will be looking to see if the choppiness subsides now given this return to alignment. Bad news can quickly and easily undo these technical patterns though. The markets are still very jittery at the moment. 

Warning 1: I am conscious of the fact that price on both of the daily Ichimoku Index charts is getting closer to the Cloud though. The convergence of price with the daily Cloud could point towards a potential reversal. Thus, I will be on the lookout for a trend reversal on the Index Cloud charts along with any other signs of market weakness.

Warning 2: There is a potential 'double top' on the broader S&P500 stock market and this will be spooking some traders:

Earnings season is upon us now and the expectations are for some poor results. A spate of poor earnings near the current market top could be the market weakness catalyst that sends stock into a downward correction; an event that would most likely boost the USD. Vigilance and flexibility are the key to trading through these markets.

Warning 3: I am also conscious that the 'risk on' we saw last night was not as unanimous as per usual 'risk on' rallies. Whilst the E/U and E/J traded up and the Swissie down as per usual 'risk on' the A/U, Kiwi and G/U traded down, the USD/SGD chopped sideways and the Loonie was up and down! So, the usual 'risk on' correlation seen amongst pairs was not as prevalent this week. Whether this divergence is the beginning of some further correlation unraveling or just temporary remains to be seen though.

I will look for 'risk on' trades if:
  • the USDX remains below the bear flag pattern and below the daily and 4hr Cloud AND IF
  • the EURX remains above the bull flag pattern and the daily 200 EMA at the 101 level and above the 4hr and daily Cloud. 

I will look for 'risk off' trades if:
  • the USDX returns to being bullish and the USDX Cloud charts revert to bullish AND if
  • the EURX returns to being bearish and closes & holds out below the daily 200 EMA at the 101 level.

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.

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