FX Indices Review for 11/03/13

USDX

Monthly: Ranging upwards. The February candle closed as a large bullish engulfing candle. The current new March candle is bullish.

Weekly: Trend up overall. The weekly support trend line is still supporting price. The H&S pattern on the weekly chart might be undermined by the weekly close above the 82.59 level now though. 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 USDX retraced back up past the 81.70 level and spent most of the week between this level and the next resistance level of 82.59. Price broke and closed above the 82.59 level after the positive US jobs data. The weekly candle closed as a small, but bullish, candle.

Daily: Up. Price rallied for all of February but chopped sideways for the start of March, under the 82.59 level. Price broke and closed above this level on Friday.

Daily Ichimoku Cloud chart: Price has held up above the daily Cloud. 

4hr: Trend Up. Price trended sideways under the 82.59 S/R level to start the week in another ‘bull flag’ like pattern. The 82.59 level is the 61.8% fib retrace from the last swing high back in March 2010 so, it is significant. Price broke out and up from this Flag midweek and tested the 82.59 level before finally breaking through and closing above this level on Friday.

4hr Ichimoku Cloud chart: Price has traded above the Cloud all week but has trended down towards the Cloud. The current alignment is in agreement with the daily chart though and supportive of USD strength. 

EURX

Monthly: Trend down overall but 6 of the last 7 months were bullish.  The February candle closed as bearish and as an ‘inside candle’. This reflects indecision or consolidation. This was the first bearish monthly candle in 7 months. Price has failed to move up above the monthly 200 EMA and this level continues to be resistance for the index.  A bull support trend line is still in place and I have extrapolated this out as part of a new monthly triangle pattern to show the support level. The current new monthly candle for March is printing a small, but bullish, candle; similar in size to the bullish USDX monthly candle!

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 the current pause, with the possibility of further reversion to the mean or the trend line, is not out of order as part of any continued longer term bullish price action for. The weekly candle closed as a small but bullish candle. The current weekly chart print could still almost be considered as a ‘bull flag’ pattern though.

Daily: Trend ranging upwards. Price seems to have been consolidating under the monthly 200 EMA for most of February, and now into March as well, in a descending broadening flag pattern. These are bullish patterns and give this index a ‘bull flag’ appearance. There is strong support under current price in the form of the weekly 200 EMA.

Daily Ichimoku Cloud chart: Price is still trading just above the Daily Cloud but has been consolidating in a narrow range for the last 3 weeks. It was edging closer towards the Cloud but bounced off mid week. Friday’s bearish action saw it edge back closer to the Cloud again though.

4 hr: Trend ranging down. Price traded sideways in a smaller 4hr flag pattern to start the week.  This 4hr flag pattern was set within the larger flag like pattern from the daily/weekly chart. The weekly 200 EMA continued to be a key level here and offered a fair bit of support all week. Price broke out and up from this smaller flag pattern mid week and rallied to test the upper trend line of the larger flag pattern. This was also in the vicinity of the 108.50 level; a previous level of strong S/R. Price broke back down from these levels on Friday after some poor Euro news and thoughts that the USD might gain strength after the positive jobs data.

4hr Ichimoku Cloud chart: Price traded under the Cloud for most of the week but broke up and over the Cloud on Thursday. Friday’s bearish action saw price fall back to rest in the upper level of the 4hr Cloud. This divergent from the daily chart and suggests further choppiness.

Thoughts: Ichimoku divergence has been with us for the whole of February and now into March making for continued choppy 4hr chart trading and few TS signals. We had an unusual situation for a time this week with both Indices trading ABOVE their Clouds on the daily and 4hr chart time frame. 

A new phenomenon has entered the markets over the last couple of weeks though too. We have been seeing the USD rally alongside a rally in stocks. A long standing correlation has been an inverse relationship between stocks, and general risk appetite, and the USD though. I commented at the time that I was not sure whether this was due to a new paradigm settling in with the markets or due to market topping activities that were occuring with many global stock indices.

The steady drip of positive global economic data of late though raises the question of just how long US monetary easing will need to be continued. A reduction in easing normally boosts a currency. There has been a bit of market talk this week about the USD being seen now not so much as a ‘flight to safety’ currency but, rather, a ‘growth’ or ‘risk’ currency. The last 6 or so months has seen the Euro as the ‘risk’ appetite currency but, now, the USD might now be starting to steal this mantle! Thus, we could be entering a new market paradigm where risk is sought through stocks and through the USD! This shift will not be without some continued choppiness as a new equilibrium is sought, if indeed this new paradigm does endure. I am not too sure that the US really wants too strong a Dollar though due to the negative impact this might have on exports etc. It remains to be seen how other typical ‘risk currencies, like the AUD, CAD and Kiwi etc, will fare in any new world order that emerges.

I am going to see how the markets open and trade early next week before deciding on any trading levels. I may have to switch my ‘risk on’ focus to be one that chases the USD!

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.