Trade Week Analysis for 25/03/13

Yet another choppy week....again!

Last week: It’s still more of the same for this month: Cloud divergence, choppy markets, few TS signals and some good 30 min chart trades during the US session.  There were a few choppy TS signals: E/U= -100, Kiwi = -30, EUR/GBP = 170, E/J= -100, A/J= -100, U/J = -100, A/U=currently 10, Kiwi = currently =15, EUR/AUD = -60.

This week: The news this Sunday morning is very upbeat about the progress being made with the Cyprus bank funding crisis. There seems to be a mood of optimism around the latest strategy that sees 20% of Cyprus bank deposits over 100 K Euro being assumed. I certainly don't think this is anything to get excited about and I'll be waiting to see how the markets react to this news. I would not be surprised to see a run on banks around other European countries and, also, for Gold to start to climb again.

4hr chart trend trading has been choppy for the best part of 2 months now and this pause in trend is not at all surprising. The EURX has been a pretty good barometer for the degree of 'general risk appetite' over recent months. The weekly EURX chart below shows the 'risk on' rally from early last year until about January of this year. This rally had been parabolic in nature and was not sustainable. Risk momentum since then has waned and price action on the EURX has been choppy and trading within a 'flag' like pattern:

Price has reverted back towards the mean, as price often tends to do. Price is now getting back down to the support of the weekly bull trend line. The boundaries of this flag pattern will be key levels to watch for over the coming days, and possibly weeks, so as to assess whether 'risk on' appetite will resume.

I’m also waiting for price to emerge out of the Cloud on the EURX daily chart before considering taking any further TS signals. It is no coincidence, though, that a break out and up from the EURX 'bull flag' pattern (chart above) would coincide with a break out and up from the Daily Cloud pattern (chart below):

Even with all this concern about the stability of European banks, some of the individual currency pairs are starting to look a bit bullish for 'risk on'. Personally, I don't understand this BUT I will try to keep an open mind and trade what the charts present. I said weeks ago that the big surprise might be that we break out to the upside...I don't understand it BUT...if it happens I'll trade it.

Stocks:
I still don't see any sign of a looming stock correction; especially on the monthly chart of the S&P500. There is no price divergence evident as there was with the previous two corrections:

I'm not even seeing any recent divergence to suggest a looming correction from the daily chart of the S&P500 either. Any escalation of a Euro Banking crisis could be a game changer though:

BTW: I have updated my March: Stocks page.

I’m also still watching to see if the USD reverts back to trading inversely to risk appetite (stocks, Euro, AUD etc). This seemed to be the case with Fridays trading. Thus, I’m still only quoting levels of interest for the time being.

Some key events to watch out for include:

• Monday March 25^th: Ben Bernanke speaks.
• Wednesday 27^th March: US Consumer confidence, New & pending Home Sales. NZD Business confidence. GBP data.
• Friday March 29^th: Good Friday.

Pairs I’m leaving for the time being: I am leaving out the USD/SGD as there has been a lot of noted and documented anomalies with this pair. I’m also leaving the USD/CHF too whilst there is pegging of the CHF to the Euro. I’m leaving the Loonie out too. I’m realising it is better to watch fewer pairs, the ones that are delivering trends, and to watch them well.

E/U: Price gapped down 160 or so pips on Monday following on from Cyprus w/e dramas. It then bounced around either side of the 1.29 S/R level and is still trading within a descending wedge pattern. These are bullish patterns. I don't understand why the Euro should rally BUT I will trade what I see. Price rallied on Friday to close just under the upper trend line of the wedge pattern at just below the 1.3 S/R level. Price is trading below the Cloud on the daily and the 4hr Ichimoku chart which is bearish. The 4hr ichimoku Cloud chart has given a bullish signal though. The weekly candle closed as a bullish candle.

• I’m watching the 1.29 and 1.30 levels and the boundaries of the descending wedge pattern.

E/J: Price gapped down 270 or so pips on Monday following on from Cyprus w/e dramas. It then bounced around either side of the 123 S/R level and is back trading above a daily bull trend line, having dipped below this support trend line during the week. Price is trading in the Cloud on the daily chart and below the Cloud on the 4hr time frame which is divergent so price may continue to be choppy. The weekly candle closed as bullish candle.

• I‘m watching the 123 level and daily support trend line.

A/U: Price gapped back below the 1.04 level on Monday and bounced around under this level for much of the week. It broke up through on Thursday and gave a new TS signal.  It is trading above the Cloud on the daily and the 4hr chart which is bullish. The weekly candle closed above the whole number, psychological 1.04 level and as a bullish candle.

• I’m watching for a hold above the 1.04 level. The A/U has given a new signal to LONG.

A/J: Price gapped down 150 pips at market open. It has slowly worked its way back up trading just under the key 100 S/R and psychological level. Price is trading above the Cloud on the daily but in the Cloud on the 4hr chart which is suggesting further choppiness. The weekly candle closed as a bullish candle. 

• I’m watching the 100 level.

G/U: Price was not too badly affected by the Cyprus news and has held up above the key 1.5 level all week. It is still trading below the Cloud on the daily but above the Cloud on the 4hr chart so might continue to be choppy. I have not received a clean TS on my 4hr charts BUT there are some bullish signals starting to form up on this pair though:

• The weekly candle closed as a bullish  candle. 
• I am close to getting a LONG signal on my daily charts. 
• Also, note the bullish, reversal style 'hammer' candle on the current print of the monthly chart.  

I will try to keep an open mind here although, like with the Euro, I don't understand the bullish movement with this pair.

NB: Go Market charts have an error for my weekly 200 EMA with the G/U. I have advised them about this.

• I’m still watching the 1.5 level.

Kiwi: NZD/USD: Price has held out and up from a bullish, descending wedge pattern. Price gapped down a bit to start the week on the Cyprus news but managed to hold above the daily 200 EMA. It gave another TS signal to LONG on Thursday. Price is trading in the Cloud on the daily but is above the Cloud on the 4hr chart which is divergent so might continue to be a bit choppy. The weekly candle closed as bullish candle.

• The Kiwi has given a new TS signal to LONG.

EUR/AUD: Price has chopped down for most of this week within the descending trading channel that it has been in for the last 7 weeks. Price broke down from this channel on Thursday and gave a new TS signal to SHORT but that has now closed for a loss. It is trading below the Cloud on the daily and 4hr chart which is bearish. The weekly candle closed as a small bearish, almost ‘spinning top’ candle.

• I’m waiting for a clear and decisive break out of the trading channel.

The Yen: U/J: Price gapped down below the key 95 level on Monday but made its way back up to this key area. Price is still trading above the Cloud on the daily but is below the Cloud on the 4hr chart which is divergent so price action might be choppy. The weekly candle closed as an inverted hammer candle, suggesting a reversal to the upside.

• I’m still watching the 95 level and hoping for a target of the monthly 200 EMA near 103!

EUR/GBP: This pair has bounced back down from the upper edge of a trading channel on the monthly chart that dates back to 2009. Price continued to trade down after breaking out of the smaller ascending channel pattern on the 4hr chart. Price is now trading in the Cloud on the daily but below the Cloud on the 4hr chart which is divergent and suggests further choppiness. The weekly candle closed as a bearish ‘spinning top’ candle. The current monthly candle is printing a bearish engulfing candle.

• I’m watching for any break above the upper trend line on the monthly channel.

Silver: Silver has broken below the long term monthly support trend line and has managed to hold above the $28 level. Price has chopped sideways for a number of weeks but broke upwards on Thursday. Price broke back down on Friday though. The weekly candle closed as a bearish ‘spinning top’ candle.

Gold: Gold has broken down through major monthly support that dates back to early 2008. This is a major break down for the metal. The next major support level seems to be at $1,525. Price might have bottomed for this metal as it continued to trend upwards this week, following on from last week’s bullish candle. Price action may have been helped by some fear emerging out of the Cyprus banking drama. The weekly candle closed as a bullish candle and above the monthly pivot. The media is trying to play down the impact of the Euro/Cyprus banking crisis but I'm keeping an eye on Gold to see how it behaves. The metal did fall a bit on Friday as the USD started to fall BUT price still closed above a major psychological support in the monthly pivot: