FX Indices Review for 02/04/13

USDX

Monthly: Ranging upwards. The March candle closed as a bullish candle.

Weekly: Trend up overall. The weekly support trend line is still supporting price. The weekly candle closed as a bullish engulfing candle after two bearish weeks.

Daily: Trend Up. Price rallied for all of February but had chopped sideways and up for most of March. Price had been trading in a flag pattern but broke out and up from this midweek.

Daily Ichimoku Cloud chart: Price is still trading above the daily Cloud and is now back above the Tenkan-sen line.

4hr: Trend ranging/up. Price trended up for most of the week, broke up and out of the flag, but pulled back on Thursday.

4hr Ichimoku Cloud chart: Price finished last week below the Cloud but moved back above the Cloud on Monday. Price then traded just above the Cloud all week.  This is in alignment with the daily chart and supportive of bullish for USD or, more recently, ‘risk off’. Price would not have to fall very far though to move back below the Cloud.

EURX

Monthly: Trend down overall but 6 of the last 8 months were bullish.  March has closed as a bearish candle and back down near the support trend line of the monthly chart triangle pattern. Price has failed to move up above the monthly 200 EMA and this level continues to be resistance for the index.

 

Weekly: Trend up but has stalled. Price has failed to move above the monthly 200 EMA. This has been major resistance so it is no surprise that price has paused under this level. Price action had been quite parabolic for ‘risk on’ until recently and has now pulled back to the mean of the support  trend line;  something that is not out of order as part of any continued longer term bullish price action. The weekly candle closed as a large bearish engulfing candle. The current weekly chart print could still be considered as a ‘bull flag’ pattern though.

Daily: Trend ranging. Price seems to have been consolidating under the monthly 200 EMA for February and March in a descending flag pattern. These are bullish patterns and give this index a ‘bull flag’ appearance.  Price trended down for most of the week but has bounced off the bottom trend line of the potential flag pattern. The major monthly bull support trend line is not far below current price.

Daily Ichimoku Cloud chart: Price moved out and down from the Daily Cloud on Monday and is still trading below the Cloud. Whilst this is bearish for further price action it is still within the confines of the flag pattern.

4 hr: Trend ranging down. Price trended down at the start of the week but then levelled out for the final two days of the short trading week.

4hr Ichimoku Cloud chart: Price traded below the Cloud all week. This is in alignment with the daily chart and supportive of bearish for EUR and favouring ‘risk off’.

Thoughts:

Technical trading has been very difficult over recent weeks in the face of so much significant news. I am actually surprised that the EURX has held up as well as it has given the dire Euro news and events that have plagued the global economy over recent weeks.

The Ichimoku charts are now aligned on the EURX and USDX index charts for ‘risk off’. That is, bullish for USD and bearish for EUR. There has been a reluctance for many currency pairs to trade ‘risk off’ though. This is most likely due to current US Fed monetary policy and the constant slow drip of reasonably encouraging global economic data.

The EURX has been a proxy measure of the mood for ‘risk appetite’ over recent months. The EURX has now pulled back down to be very near the support of the major monthly trend line. This region could prove to be a significant level for the EURX in the coming days/weeks and could prove to be a turning point for the EURX back to ‘risk on’.  Price action still has some possible room to fall to test this major support level. This level will be of key interest to me to see whether it: 

• holds and supports price and, then, reverts price action back to ‘risk on’ OR
• fails to support price and is breached, thereby, allowing for continued ‘risk off’.

Whilst we don’t have divergence between the main FX index charts, what does bother me is the divergence between the currency (FX) markets and the broader stock markets. These usually trade in tandem, more often than not, and currencies have been trading more towards 'risk off' for some time now.

I do see a bit of divergence creeping in on the daily stock charts but not on the longer term monthly charts (charts below). I have noted before that this current 'top' in the stock markets does not 'look' like previous 'tops' to me. Well, that is, just at the moment at least; this may well change though.

S&P500 monthly chart: no divergence now as there was for last two market tops:

S&P500 daily chart: a bit of divergence creeping in:

So, I'm not sure whether FX might flip to join stocks in further 'risk on' momentum or, whether, stocks might flip to join currencies. I do think they will converge again soon though and I'll be keen to see which path they do indeed follow.

I would really like to see the trend channel on the EURX daily chart broken before being confident of further 'risk off' momentum BUT, then, the major bull monthly support trend line is not far below that and this would also need to be breached to allow for further 'risk off' moves. Basically, there is still a fair bit of support under the EURX.

Note: 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.