Saturday, March 16, 2013

FX Indices Review for 18/03/13

Monthly: Trend ranging upwards. The February candle closed as a large bullish engulfing candle. The current new March candle is bullish but printing what looks like a ‘shooting star’ pattern. This would suggest a reversal down from the current bullish move.

Weekly: Trend up overall BUT we have had a bearish close for the weekly candle and this is the first bearish candle after 5 bullish weeks. The weekly support trend line is still supporting price.  The H&S pattern on the weekly chart might come back to life after the weekly candle closed below the key 82.59 level. The 82.59 level represents the 61.8% fib retrace level from the last major swing high back in mid 2010 and is proving to be very significant. The ‘neck line’ of this pattern is at 78.81 which is equivalent to the 38.2% fib retrace level from this last major swing high. The weekly candle closed as a bearish engulfing candle and below the daily bull trend line on the smaller time frame daily chart.

Daily: Trend Up. Price rallied for all of February but has chopped sideways and up for the start of March. Price started to fall on Friday though and has now also broken and closed below the daily chart's bull support trend line.

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

4hr: Trend Up. Price chopped sideways for most of the week along the 82.59 S/R and 61.8% fib level.  Price fell on Friday and dropped and closed below the daily chart's support trend line.

4hr Ichimoku Cloud chart: Price traded just above the Cloud for most of the week but dropped to below the Cloud on Friday. The current alignment is now divergent from the daily chart though and suggests choppiness.

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 still printing a small, but bullish, 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 bearish spinning top candle. This reflects indecision with this index. The current weekly chart print could still 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. Price has traded closer this week towards the upper trend line of the potential flag pattern.

Daily Ichimoku Cloud chart: Price dipped into the Daily Cloud this week but is trading up near the top edge of the Cloud.

4 hr: Trend ranging down. Price has chopped around under the upper trend line of the larger flag pattern. This trend line is also in the vicinity of the 108.50 level; a previous level of strong S/R. The weekly 200 EMA continued to be a support key level here. Price finished the week near the safety of the monthly and weekly pivot and 4hr 200 EMA.

4hr Ichimoku Cloud chart: Price started the week above the Cloud but dipped into the Cloud midweek. This suggests further choppiness.

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. The Cloud charts had looked like they were setting up for alignment towards being bullish for the USD. They are back in a state of flux now and could just as easily flip back to being bullish for traditional ‘risk on’ vehicles (Euro, AUD, Kiwi etc).

This choppy 6 week period has allowed for a pause with the parabolic rise of ‘risk’ and the Euro and allowed the EURX to revert back closer to the mean, or the weekly support trend line. The bull flag pattern on the Euro chart will be clear guide here in the coming week and will allow to me see if there is any renewal of this bullish 'risk on' ascent.

I had stated last week that I was watching to see if the recent trend of a direct relationship between the USD and stocks/’risk appetite’ would continue. Momentum with the USD and stocks stalled somewhat this week though and Friday actually gave a glimpse of a return to the previous correlation. That is, the inverse relationship of the USD to ‘risk appetite’.  On Friday we saw the USD fall and, whilst stocks were down / flat, other risk vehicles like the Euro, AUD and Kiwi actually rallied. The USD also broke down through a significant daily support trend line and gave the first bearish weekly candle out of the last six weeks.  So, now I’m back to looking for a return of this more typical correlation of an inverse USD to that of stocks/risk appetite.  I’m also watching to see if the USD continues to fall. The FOMC meeting this week, and any comments Fed Easing policy, will most likely impact on 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.

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