FX Indices Review for 31/12/12

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, with only one more trading day left, 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 remains broken on the weekly time frame. The H&S neck line has not been reached yet though. The weekly candle closed as an indecision style ‘spinning top’. 

Daily: Ranging.  Price broke down through the weekly 200 EMA and the bull support trend line 3 weeks ago but stalled as it approached the weekly H&S neck line at 78.81. Price has edged up for much of the week but failed to close and hold back above the weekly 200 EMA. This level is now proving to be some resistance. Friday’s candle closed at the end of this up move as a 'shooting star' pattern. This is a rather bearish sign.

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

4hr: Down then up. Price has traded in an upwards trend channel for much of the last 2 weeks. It has failed to break and hold back above the weekly 200 EMA though.

4hr Ichimoku Cloud chart: Price is trading in the 4hr Cloud. 

EURX

Monthly: Trend down overall. The last 5 months have been bullish candles. The December candle, with only one trading day left, is still printing a very bullish candle as well.  Price is now trading within just the one symmetrical triangle pattern and this is on the monthly chart. The upper  trend line of this triangle dates back to 2009. Price is getting up closer to this upper trend line and needs watching! 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 4 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. Price seems to be heading up towards the bear trend line of the monthly symmetrical triangle pattern. It is important to note that this upper triangle trend line is trading in sympathy with the weekly 200 EMA. The weekly candle closed as a 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 7 weeks since it broke out and up from trading within the downward trend channel. Price broke out and up from trading within a flag pattern at the beginning of the week and this did result in a continuation pattern. Price is trading within another channel pattern as the markets wait for news about the Fiscal Cliff.

4hr Ichimoku Cloud chart: Price is still trading above the Cloud on the 4hr chart which is congruent with the daily Cloud chart and supports a ‘risk on’ bias.

Thoughts: There is a US ‘Fiscal Cliff’ summit meeting on Sunday (US time) and the outcome of this meeting will undoubtedly drive market momentum to, at least, start the week. We are still in a holiday period which traditionally is more volatile due to light trading volume. Trend trading will be clearer, and safer, once the Fiscal Cliff matter is dealt with. Long or short, I'll trade either way and with the momentum but I want clear signs on the charts.

The EURX is currently edging up closer to the upper trend line of a major triangle pattern on the monthly chart. This is a major level for this index. I will be watching this level closely next week, especially if 'risk on' momentum continues.

Ichimoku thoughts: The EURX Ichimoku Cloud charts are still aligned for optimum ‘risk on’ trading. The 4hr and daily USDX charts are divergent though.

I will look for 'risk on' trades if:

• the USDX returns to being bearish and breaks down from the ascending channel 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 if
• the EURX returns to being bearish and breaks down for 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.