Saturday, November 17, 2012

FX Indices Review for Week 19/11/12

Monthly: Ranging upwards.A bull support trend line is in place. The October candle was an ‘indecision’ style Doji, or almost a reversal style hammer pattern. The current November candle is still very bullish and is engulfing the October candle. You could almost construe a possible ‘bull flag’ pattern forming here though.

Weekly: Trend up overall. The H&S pattern is still possibly setting up on the weekly chart. The previous resistance level of 81.70, the next possible shoulder, is still just above current price.

Daily: Ranging/up.  Price is trading in an upwards trend channel.

Daily Ichimoku Cloud chart: Price has continued to retrace upwards and has ploughed its way up through the Cloud all week. Price has just emerged up and out from the daily Cloud. This is now congruent with price action on the 4hr chart.

4hr: Trend up. Price has drifted upwards, albeit slowly, throughout the last week. A strong trend channel is in place.

4hr Ichimoku Cloud chart: Price has traded above the Cloud on the 4hr chart all week. 

Monthly: Trend down. August, September & October candles were bullish though. The new November candle is still bearish but currently forming an ‘inside candle’. These represent indecision or consolidation. The ‘Bear Flag’ pattern might still be forming here though too as price has broken below the monthly bull trend line.

Weekly: Trend down to ranging. Last week’s candle was bullish and formed an inside candle pattern. This represents indecision and/or consolidation. This casts a bit of doubt on a pure bear flag pattern forming on the EURX monthly chart. This could just be a pause before the next down move or, possibly, a reversal. I also still see a possible bullish ‘inverse Head & Shoulder’ pattern possibly setting up. This would dovetail in with the bearish H&S pattern I see forming on the USDX.

Daily: Trend up / ranging. Price has broken out and up from the downward trend channel it had been in since the previous triangle break down. It struggled to get above the monthly pivot and daily 200 EMA though at the 101.3 level. Friday’s candle was an ‘indecision’ inside candle too. A few of these this week!

Daily Ichimoku Cloud chart: Price started the week above the Cloud and then drifted down back into the Cloud. It has finished the week embedded between the Tenkan and Kijun –sen lines and trading just above the Daily Cloud.

4 hr: Trend down but has turned. Price broke out and up mid week from trading within the downward trend channel. It has been rather bullish this week and now looks like it could be forming a bullish broadening ascending wedge. Price finished the week near the safety of the 4hr 200 EMA.

4hr Ichimoku Cloud chart: Price had moved up through and above the Cloud earlier in the week but has now traded back down to end the week embedded within the Cloud on the 4hr chart. This is divergent from the daily chart though.

Thoughts:  The USDX has continued its ascent this week, albeit at a rather slow and ambling pace. It is still looking quite bullish though as it seems to be marching up towards the 81.70. The 81.70 is a strong level of previous S/R. This bullish USD momentum is set in the context of a counter, bearish signal though in the formation of a possible H&S on the weekly chart. I suspect that the 81.70 level will, again, be the critical technical level to watch for this week. 

‘Fiscal Cliff’ fear seems to be driving the markets at the moment. Stocks sold off heavily this week even though the USD only rose slightly, most likely due to this fear but, also, due to ongoing Euro zone worries. These problems remain front and centre this week. The US Thanksgiving Holiday is another factor in play this week so trading might be thinner as people ride out the holiday period and wait in hope for a resolution from Congress concerning US debt and the Fiscal Cliff. I suspect that any announcement about reaching a resolution to this problem could send the markets sharply higher. Conversely, a failure to reach a solution could send markets tumbling. It might be best to wait to see this problem resolved, one way or the other, before being confident in any new trend direction.

Ichimoku thoughts: There are conflicting signals coming from the EURX and USDX at the moment. The USDX daily and 4hr charts are aligned above their Cloud for potential ‘risk off’ trading. The EURX daily and 4hr charts are also trading very near to the top of their Clouds and setting up for potential ‘risk on’ trading! So, I’m not the only confused trader out there!

I will look for 'risk on' trades if:
  • the USDX returns to bearish and breaks down from the trading channel AND if
  • the EURX returns to being bullish and breaks up above the 101.3 level of the monthly pivot and daily 200 EMA.
I will look for 'risk off' trades if:
  • the USDX remains bullish and also breaks above the 81.70 level and trading channel AND if
  • the EURX remains being bearish and breaks, closes and holds below the 101.5 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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