Saturday, January 19, 2013

FX Indices Review

Monthly: Ranging upwards. A bull support trend line is in play. The new January candle is still printing a bullish 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 H&S neck line has not been reached yet though. Price would need to pierce the supporting bull trend line first. The left hand shoulder of this pattern took 5 months to form and the right hand shoulder has only been forming for 3 months so, there is still time for this possible pattern to evolve. The weekly candle closed as a bullish candle. 

Daily: Ranging. Price traded around the weekly 200 EMA and weekly and monthly pivot all week. Price closed below the daily 200 EMA.

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

4hr: Ranging. Price tried to break up over the weekly 200 EMA and weekly and monthly pivot all week and finally broke through on Friday. Price also broke up through the 4hr 200 EMA and finished the week off resting at the psychological, whole number level of 80.

4hr Ichimoku Cloud chart: Price is trading back in the 4hr Cloud. This is divergent again from the daily chart so price action might be choppy.

Monthly: Trend down but has turned with last 5 bullish months. The new January candle is now larger than last week and bullish as well.  Price has broken out from trading within a symmetrical triangle pattern from the monthly chart but this candle still has some time until it closes. The upper bear trend line of this triangle dates back to 2009 though so is very significant. A bull support trend line is still in place.

Weekly: Trend up. The bullish ‘inverse Head & Shoulder’ pattern has held up and delivered lots of pips over the couple of months. This dovetails in nicely with the bearish H&S pattern I see forming on the USDX. Price is still trading above the bullish ‘neck line’ of this inverse H&S pattern. Price has broken out and up from trading within the symmetrical triangle.  This break coincided with a break up and close above the weekly 200 EMA as well.  This is a significant break upwards for the EURX. These two resistance levels will continue to test the EURX into next week and I will be watching closely to see if price can hold above these key levels. The weekly candle closed as a bullish candle above the weekly 200 EMA. 

Daily: Trend ranging upwards. Price has been bullish for much of the last 10 weeks.  

Daily Ichimoku Cloud chart: Price is trading above the Daily Cloud.

4 hr: Trend ranging/ up. Price broke out during the week from trading within a bullish wedge pattern; the 7th such wedge or flag pattern that has appeared over recent weeks!  Price, on Thursday, finally broke and held above the weekly 200 EMA and bear trend line of a triangle pattern. Price is still holding above these levels for the time being.

4hr Ichimoku Cloud chart: Price is trading above the Cloud on the 4hr chart. This is in complete agreement with the daily chart and augers well for ‘risk on’ trading.

Thoughts: Last week started with price on the EURX bouncing back down from the key resistance levels of a monthly bear triangle trend line, dating back to October 2009, and the weekly 200 EMA. Eurogroup member comments, regarding concern over the high Euro value, helped to spook 'Euro bulls'. Price successfully attempted these levels again and has now closed above them for the week. Next week’s focus will be to see whether EURX price can hold above these major S/R levels and, then, keep moving with ‘risk on’ momentum. We have also had the strange situation this week where the EURX traded up overall for the week but, so too did the USDX!

The EURX is not the only trading instrument printing significant new ‘highs’. Global stock markets are also printing major new ‘highs’; Tokyo and Hong Kong markets closed up at multi month highs, the London FTSE is holding above the major break of 6000 and the US Dow and S&P500 are at 5 year highs. These are significant levels for all of these instruments and they give traders key levels to watch out for next week. It would not be surprising to see some sideways consolidation following these major breaks.

This week: The Ichimoku charts are back to being divergent so I’ll be cautious with any new TS signals next week. I’ll also be watching to see if the EURX can hold above the major resistance levels of the broken triangle bear trend line and weekly 200 EMA. As stated last week, I will be expecting some choppy action around these levels and possibly even reversal. They still could prove to provide a ‘watershed’ type moment where the flood gates open for ‘risk on’ though. 

I will look for 'risk on' trades if:
  • the USDX remains bearish and remains below the 80.70 level  AND if
  • the EURX remains bullish, holds above the weekly chart’s ‘inverse H & S’ pattern neck line and holds up and out from the weekly 200 EMA and broken trend line.

I will look for 'risk off' trades if:
  • the USDX returns to being bullish and breaks, closes and holds back above the 80.70 level  AND if
  • the EURX returns to being bearish and breaks back down below the weekly 200 EMA and triangle trend line.

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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