FX Indices Review for 24/12/12

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 December candle is still forming a bearish engulfing candle. 

Weekly: Trend up overall. The H&S pattern is still 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. This was broken late in the prior week. The H&S neck line has not been reached yet though. The weekly candle closed as an indecision style Doji and this could mark a reversal point for the USDX.

Daily: Ranging. Price broke down through the weekly 200 EMA and the bull support trend line in the previous week but stalled this week as it approached the weekly H&S neck line at 78.81. Friday’s candle closed as a bullish engulfing candle following rising fear after the vetoed Fiscal Cliff vote. 

Daily Ichimoku Cloud chart: Price is still trading below the daily Cloud.

4hr: Down. Price traded down for most of the last 2 weeks but then broke up and above a bear trend line on Friday following the vetoed Fiscal Cliff vote. Price could be thought to be trading within a bearish ascending wedge pattern though.

4hr Ichimoku Cloud chart: Price is still trading below the 4hr Cloud which is congruent with the daily Cloud chart. Price is up above the Kijun-sen line though.  

EURX

Monthly: Trend down overall. The last 4 months have been bullish candles. The current December candle is still 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 held up and delivered lots of pips over the last 2 weeks. This dovetails in nicely with the bearish H&S pattern I see forming on the USDX. Price is still trading above the ‘neck line’ of this inverse H&S pattern now which is a bullish sign. The weekly candle was an indecision spinning top candle though and may form a reversal point.

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 6 weeks since it broke out and up from trading within the downward trend channel. This rally stalled this week and was reversed following news of the vetoed Fiscal Cliff vote. Price is trading within a flag pattern and this could be viewed as a continuation pattern.

4hr Ichimoku Cloud chart: Price is now trading above the Cloud on the 4hr chart which is congruent with the daily Cloud chart. The Tenkan-sen and Kijun-sen lines have crossed though.

Thoughts: ‘Fiscal Cliff’ concern dominated trading this week and this culminated in a major momentum shift following the vetoed vote on Thursday pm US time.  There is still some hope that this matter will be resolved before the end of the year though. Concern about this resolution will continue to unsettle the broader markets during this holiday period which traditionally is more volatile on light trading volume. Trend trading will be safer once the Fiscal Cliff matter is sorted.

Ichimoku thoughts: The Ichimoku Cloud charts for both indices are still aligned for optimum conditions for ‘risk on’ trading.

I will look for 'risk on' trades if:

• the USDX returns to being bearish and breaks down from the ascending wedge pattern  AND if
• the EURX returns to being bullish, holds above the weekly chart’s ‘inverse H & S’ pattern neck line and breaks up and out from the flag pattern.

I will look for 'risk off' trades if:

• the USDX remains bullish and breaks, closes and holds back above the weekly 200 EMA and wedge pattern  AND if
• the EURX returns to being bearish and breaks down from the flag pattern.

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.