USDX
Monthly: Ranging upwards. The bull support trend line has been breached. The October candle was an ‘indecision’ style Doji, or almost a reversal style hammer pattern. The November bullish candle was an inverted hammer pattern. The new December candle is forming a large bearish engulfing candle.
Weekly: Trend up overall. The H&S pattern still looks to be printing on the weekly chart. The ‘neck line’ of this pattern is at 78.81 which is equivalent to the 38.2% fib retrace level from the last major swing high back in mid 2010! The weekly bull support trend line and weekly 200 EMA has been broken on the weekly time frame. The H&S neck line has not been reached yet though. The weekly candle closed as a large bearish engulfing candle.
Daily: Ranging/upwards. Price has broken down through the weekly 200 EMA and the bull support trend. Friday’s candle closed as bearish and engulfing.
Daily Ichimoku Cloud chart: Price is back now trading below the daily Cloud.
4hr: Down to ranging. Price has traded down all week.
4hr Ichimoku Cloud chart: Price is now trading below the 4hr Cloud which is congruent with the daily Cloud chart.
EURX
Monthly: Trend down overall. The last 4 months have been bullish candles. The current new December candle is now forming a bullish candle as well. Price is now trading within just the one symmetrical triangle pattern and this is on the monthly chart. The upper bear trend line of this triangle dates back to 2009. A bull support trend line is still in place.
Weekly: Trend ranging. The bullish ‘inverse Head & Shoulder’ pattern still seems to be holding up. This dovetails in nicely with the bearish H&S pattern I have forming on the USDX. Price has now closed back above the ‘neck line’ of this inverse H&S pattern now which is a bullish sign. The weekly candle was a large bullish engulfing candle.
Daily: Trend ranging upwards.
Daily Ichimoku Cloud chart: Price is trading above the Daily Cloud.
4 hr: Trend ranging upwards. Price has been bullish for much of the last 5 weeks since it broke out and up from trading within the downward trend channel. Price has rallied all of last week and has closed above the neck line of my inverse H&S pattern.
4hr Ichimoku Cloud chart: Price is now trading above the Cloud on the 4hr chart which is congruent with the daily Cloud chart.
Thoughts: There is a constant drip feed of moderately encouraging data out of China and the US and this is supporting ‘risk on’ trading even in the face of ‘Fiscal Cliff’ concern. It seems that traders see that we have got this far without Europe totally imploding and this seems to have reassured them somewhat. I don’t understand this momentum but I continue to trade what I see and NOT what I think.
Technical patterns have set up across the broader charts that support a move more suited to continued ‘risk on’ momentum than to ‘risk off’. I will continue to trade with the trend and until this pattern changes. These markets continue to be jittery and news driven though making technical treading challenging.
Ichimoku thoughts: The Ichimoku Cloud charts for both indices are now aligned for optimum conditions for ‘risk on’ trading. This is HUGELY significant if the situation continues to hold. Previous months and/or weeks where this phenomenon has occurred have yielded excellent trend trading opportunities. I will continue to monitor these charts to see if this phenomenon continues to hold. Dire 'Fiscal Cliff' or Europe news could undermine current momentum and reverse this trend though.
I will look for 'risk on' trades if:
- the USDX remains bearish AND if
- the EURX remains bullish and holds above the weekly chart’s ‘inverse H & S’ pattern neck line.
I will look for 'risk off' trades if:
- the USDX returns to being bullish and breaks, closes and holds back above the weekly 200 EMA AND if
- the EURX returns to being 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.
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