FX Indices Review for 07/01/13

USDX

Monthly: Ranging upwards. A new bull support trend line is in play. The very new January candle is a large bullish engulfing candle. Price rallied this week to reach back up to the 50% fib level from the last major swing high back in June 2010! Price closed the week back below this key level though.

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 H&S neck line has not been reached yet though. The left hand shoulder of this pattern took 5 months to form and the right hand shoulder has only been forming for 3 months. Thus, there is still time for this possible pattern to evolve. The weekly candle closed as a large bullish candle.

Daily: Ranging. Price rallied for much of the week. Price closed the week above the daily 200 EMA but below the 80.70 level.

Daily Ichimoku Cloud chart: Price is trading at the top edge of the daily Cloud but, as yet, has failed to break out and up from the Cloud.

4hr: Now up. Price rallied for most of last week. It has closed and held back above the weekly and daily 200 EMAs. Price rallied up to previous resistance at 80.70 and stalled at this point forming a possible ‘double top’. Price closed back below this level but finished above the daily 200 EMA.

4hr Ichimoku Cloud chart: Price is now trading well above the 4hr Cloud. 

EURX

Monthly: Trend down overall but the last 5 months were bullish candles. The new January candle is small but bearish though.  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 5 weeks. This dovetails in nicely with the bearish H&S pattern I see forming on the USDX. Price has been down this week for the first time in many weeks BUT is still trading above the bullish ‘neck line’ of this inverse H&S pattern. Price is trading within a symmetrical triangle and the upper trend line is aligned with the weekly 200 EMA. The weekly candle closed as a bearish inside candle. ‘Inside candles’ represent either indecision or consolidation before continuation.

Daily:Trend ranging upwards. Price is trading within a wedge pattern and this is the 6th such wedge, or flag, pattern that has appeared in this uptrend over recent weeks. Friday's candle closed as almost an ‘inside candle’ too. 

Daily Ichimoku Cloud chart: Price is trading above the Daily Cloud but has turned down to be embedded between the Tenkan-sen and Kijun-sen lines.

4 hr: Trend ranging. Price has been bullish for much of the last 7 weeks and is now trading in what appears to be a bullish descending broadening wedge pattern. Price bounced up and off the monthly pivot on Friday.

4hr Ichimoku Cloud chart: Price is tracking upwards and within the Cloud on the 4hr chart.

Thoughts: The USD rallied late last week on reports that the Fed may reduce monetary easing later this year. That comment seems to have been dispelled on Friday and this then halted the progress of the USD. It remains to be seen whether the USD will revert back to falling along with increased ‘risk appetite’ though and I’ll be watching to see if this correlation resumes this coming week. FX Live on Friday noted that this paradigm might be set to change this year: 2013 will be the year of the dollar, end of ‘risk on/off’. Written by Adam Button. January 4, 2013 at 18:59 GMT. The US dollar will stop trading like a proxy for risk in 2013 and will improve with economic data, according to several analysts in this story from the FT. “At some point in 2013, US interest rate markets will react to an improving economic outlook, and the ‘good data, weak dollar’ causality which we have been watching in recent years will fall apart,” predict analysts at Société Générale.

Ichimoku thoughts: The rally with the USD sent the Ichimoku Cloud charts back to being divergent across the USDX and EURX and this resulted in choppy trade late last week. Continuing Cloud and Index divergence suggests that we could be in for further choppy trading to start the week.

I will look for 'risk on' trades if:

• the USDX returns to being bearish and remains below the 80.70 level  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 wedge pattern.

I will look for 'risk off' trades if:

• the USDX remains bullish and breaks, closes and holds back above the 80.70 level  AND if
• the EURX returns to being bearish and breaks down for the wedge 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.