Saturday, May 25, 2013

FX Indices Review for 27/05/13

Monthly: Trend ranging upwards. Price briefly punched up through the strong resistance of the monthly 200 EMA and the 84 level. The monthly candle is currently printing a large bullish candle.

Weekly: Trend up overall. The weekly support trend line is still supporting price. The weekly candle closed as a bearish ‘inside' candle. These types of candles reflect indecision. The possible bearish ‘double top’ seems like it could be back now given that price has closed back below the 84 S/R level.

Daily: Trend ranging/up. Price might just be printing a ‘bull flag’ pattern here though? Or is that a bearish broadening ascending wedge?

Daily Ichimoku Cloud chart: Price traded above the Cloud all week.

4hr: Trend choppy/up. Price chopped sideways all week either side of the 84 level. It seems to be trading in a flag pattern or, possibly, even an ascending broadening wedge pattern. A ‘Bull Flag’ is, as its name suggests, a bullish pattern. An ascending broadening wedge though is, most often, a bearish pattern. A ‘go figure’ moment here!

4hr Ichimoku Cloud chart: Price was above the 4hr Cloud until Thursday when it dipped back into the Cloud. This is now divergent from the daily chart and suggests further choppiness. Like we haven’t had enough?

Monthly: Trend down overall but 7 of the last 9 months were bullish. The current monthly candle is printing an indecision style ‘spinning top’ candle.

Weekly: Trend up, overall. Price failed to move above the monthly 200 EMA back in January. This level had been major resistance so it was no surprise that price had paused here. Price action had been quite parabolic for ‘risk on’ and subsequently pulled back to the mean of the support trend line. Price bounced off this major support level and has held up for the last 8 weeks.

The weekly candle closed as a bullish engulfing candle although it does have a bit of a reversal style ‘shooting star’ look to it. Hmmm. The current weekly chart print still looks to have evolved as a ‘bull flag’ pattern. Price has now broken up and out from this flag pattern suggesting that perhaps the retracement period might be over and that the bullish movement might continue. Price is still sitting above this breakout area but is now back below, albeit only just, the 108.5 S/R level.  The weekly chart also has a possible bullish 'inverse Head and Shoulder' pattern developing. The neck line for this pattern seems to be the 108.5 level. Now isn't that interesting! The significance of this 108.5 level can be seen if you cast your eyes across the weekly chart. The failure to break and hold up through this level, after a few recent attempts, might end up proving to be bearish for the EURX. The 108.5 level is certainly a key level to watch on this index.

Daily: Trend ranging. Price chopped around again for most of this week again between the 107.5 and 108.5 levels. This area is shaded in pink on the charts. This is the 7th week of such choppy, range bound action. Price broke out of this narrow zone on Thursday but failed to hold. Friday’s candle closed as a bearish candle back within this pink trading zone and just under the 108.5 level.

Daily Ichimoku Cloud chart: Price chopped sideways above the Cloud all week.  It has, yet again, finished the week above the daily Cloud but below the 108.5 level.

4 hr: Trend ranging. Price action has been bullish for much of the week as it chopped upwards within the 107.5 - 108.5 channel. Price finished the week back within this channel.

4hr Ichimoku Cloud chart: Price started the week below the Cloud but gradually edged up during the week to finish trading above the Cloud. This is aligned with the daily chart and, surprisingly suggests, or is supportive of, ‘risk on’.

Choppy markets + Ichimoku: The Ichimoku charts are still divergent and this suggests continued choppiness. Such conditions are better suited to shorter time-frame trading during the US session than to longer term (eg 4 hr) chart trading.

The EURX: The EURX has held up surprisingly well again this week although slipping back below the 108.5 level. It just doesn’t seem to give up trying to get up and over this hurdle level. The 108.5 has been proving to be a significant challenge though and has managed to contain price for much of the last 7 weeks. Any break and continued hold above this 108.5 level would suggest that there might be some follow through with this bullish reversal and, possibly, a swing back towards a more typical form of ‘risk on’. A move back down below the Daily Ichimoku Cloud would be a very bearish signal though. I continue to watch these two areas on the EURX: the 108.5 level above current price AND the support zone represented by the Daily Cloud below current price. These remain the two key levels to watch on the EURX.

USDX: The rally for the USD stalled this week and has produced a sideways charting pattern that could be read as either bullish (bull flag) or bearish (broadening ascending wedge). I think it might be as confused and perplexed as I am!  I continue to watch stocks, currencies and the USD to see if traditional correlation patterns return.

Final word:
I am waiting for Ichimoku Cloud alignment. I see this as being somewhat similar to any other seasonal business. You just have to wait patiently and, as the saying goes, ‘make hay when the sun shines’.

I am also waiting to see whether:
  • Stocks join the ‘risk off’ moves seen recently with currencies OR
  • Currencies join the ‘risk on’ moves seen recently with stocks OR
  • Stocks and currencies continue to trade divergently. Both stocks and currencies have chopped around this week. I’m waiting to see how they both emerge from this period and which path they might take. I have no idea just now what this will be but I will be watching for clues and, once a clear new trend emerges, I’ll try to grab some of it.

Note: The analysis provided above is based purely on technical analysis of the current chart set ups. As always, Fundamental style events, by way of any Euro zone based dramas and/or news announcements, continue to be unpredictable triggers for price movement on the indices.  These events will always have the potential to undermine any technical analysis.

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