Trade Week Analysis for 26/08/13

Last week: There were only a few TS signals last week but they were pretty consistent.

This week: The USD and the EURO indices are both still near major S/R levels. The Euro index seems to have bounced a bit off support but it is still also under a major resistance level. The USDX, on the other hand, is still hovering just above its major support. I discussed this in detail in my post yesterday and this can be found through the link here.

I still have two main trains of thought here with the EURO (EURX) and USD (USDX) indices for possible scenarios:

• USDX bounces off support and EURX falls: I would expect stocks, risk instruments (E/U, A/U, G/U, Kiwi) and commodities to fall.
• USDX falls though support and the EURX breaks up through resistance: I would expect stocks, risk instruments (E/U, A/U, G/U, Kiwi) and commodities to rally.

It is also worth noting at this point that many of the major currency pairs are sitting at, or near, major S/R levels and one has just made a significant trading channel break:

• The E/U: just under 1.34
• The E/J: in the 130 region.
• The A/U: just above 0.90.
• The A/J: just above 89.
• The EUR/AUD: just under 1.50.
• The Cable: in the key area of 1.55 and 1.56.
• The Kiwi: not too far below 0.80.
• The U/J: bounced off 97 but still under 100.
• AUD/NZD: had a major channel break!

The observation of tension inherent in these critical levels, in tandem with the USD and EURO indices being as such extreme levels, suggests to me that some big moves might be in store. There is only so much coiling and pressure that one can apply to a tight spring!

I’m still keeping an open mind about the direction of any future move and will be watching to see which way momentum shifts.

Stocks and broader market sentiment: (much of this analysis is similar to that of last week)

There has been some bearish movement on the S&P500 and I'm continuing to watch here for clues as to any new momentum move. In particular I’m looking out for:

S&P500 daily chart: a break of the daily bull trend line. A ‘Bull Flag’ evolved and price has traded above the earlier high of around 1,685. The daily support trend line is still in place here and price could pull back further to test this as part of any continued, overall uptrend. The TS signal to ‘SHORT’ gave some pips here. I would not be shorting this index though, on a daily time frame, until there was a clear break, close and hold below the daily trend line.

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. There has been a bearish Tenkan/Kijun cross but these crosses, positioned above the Cloud, are deemed ‘weak’ signals. There was not a lot of bearish follow through on the last signal like this, but, still, I’m keeping an eye on it anyway. Note how price has recently bounced up off the daily Cloud! Also note how the Cloud (Kumo) is becoming broader and, thus, might offer increased support.

EURX monthly chart: a break of the monthly support trend line (see monthly chart). Price was getting down very close to this support level but has bounced up and off for the time being. This needs watching though for any possible reversal.

S&P500 monthly chart: a break of the monthly support trend line (see monthly chart). A break of this support level would suggest to me of a more severe pull back or correction. The look of this ‘market top’ appears quite different to that of the previous two market tops from back in 2000 and 2007. Elliott wave suggest a big correction here though. I am still thinking that the 1,600 level might be the new floor for this index. The saying that ‘old resistance becomes new support’ rings here. It would not be at all surprising to this 1,600 level tested again. It has only been tested once by a monthly candle since the bullish break and I would expect a significant level, such as this, to be tested more than just once. Also, the previous candle close highs from back in 2000 and 2007 were down near the 1577/1580 area so it is entirely feasible that price may test this region again as well before any continued move upwards.

Some key events to watch out for include:

• Monday 26^th: watch for any fallout from the US Fed 'Jackson Hole' symposium, GBP Bank Holiday, NZD trade balance & USD durable goods.
• Tuesday 27^th: EUR German Ifo business climate & USD consumer confidence.
• Wednesday 28^th: GBP BoE Carney speaks, USD pending home sales.
• Thursday 29^th: NZD business confidence, AUD private capital expenditure, USD GDP & unemployment claims.
• Friday 30^th: no 'red flag' data.

E/U: Price is still trading within two symmetrical triangles on the monthly/weekly charts. Price is still trading under the bear trend line of the smaller triangle and it actually bounced down from this trend line and from the psychological 1.34 level on Tuesday. The weekly support trend line is still intact and well below current price action. Price is trading above the Ichimoku Cloud on the daily and the 4 hr chart which is bullish. The weekly candle closed as a bullish candle. Price closed the week above the weekly 200 EMA which remains a bullish effort.

• I’m watching for any new TS signal and the 1.34 level.

E/J: Price finally broke free from the key 130 level and monthly pivot this week. This move upwards gave a new TS signal that has yielded up to 90 pips and it also gave a bullish symmetrical triangle break. This triangle break on the weekly chart looks like it could be a ‘Bull Flag’ break. Price is now trading above the Cloud on the daily and on the 4 hr Ichimoku Cloud which is bullish. The weekly candle closed as a bullish candle. I made special reference to this pair and its monthly chart last week. I stated that it was only a matter of time before price would eventually kick away from the congested 130 region. This latest triangle break may be the beginning of such a move! I still see the 140 level as a possible target if this bullish sentiment prevails.

• There is an open TS signal and symmetrical triangle break on this pair.

A/U: Price bounced down from the key 0.92 level and daily bear trend line at the start of the week. Price continued to drift down and below the 0.90 level before some positive Chinese data helped to boost sentiment. Price managed to close the week above the 0.90 level. I still see price action forming up into a bullish ‘Cup & Handle’ pattern on the daily chart here.

Price is trading just under the Cloud on the daily and 4hr chart which is bearish. The Aussie could rally if the USD continues to fall and, also, if Gold continues to rally. The weekly candle closed as a large bearish candle though.

Any further moves back below the 0.90 level: I don’t see much support until down at the 0.83 level! The 0.83 is the monthly 200 EMA. After that there is the 80 level that is near the 61.8% fib retrace from the last swing low to high level so this isn’t too ridiculous a notion! Any continued pause or pull back with the stock market might see price visit these low levels.

• I’m watching the 0.90 level, the daily bear trend line and the ‘Cup & handle’ pattern...still multitasking!

A/J: Price chopped around this week either side of the 89 level. The 89 area is the 61.8% fib level from the recent swing high to the last swing low, a previous triangle breakout zone and a major S/R level for the A/J. Price is still trading below the Cloud on the daily but in the Cloud on the 4hr time frame suggesting choppiness but with a bullish bias. The weekly candle closed as a bearish coloured but, almost, reversal style ‘hammer’ candle.

• I’m still watching the 89 level, the bear trend line and for a new TS signal.

G/U: Price drifted mostly sideways this week after breaking above a bear trend line last week. Price is trading above the Cloud on the daily but is now back in the Cloud on the 4hr time frame which suggests choppiness. The weekly candle closed as a bearish coloured ‘inside’ candle reflecting some indecision. Price closed the week just below the 1.56 level and weekly pivot. You can see from the weekly chart how significant this 1.56 level has been. There is a support trend line holding price on the 4hr chart though.

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

• I’m just watching this pair at the moment.

Kiwi: NZD/USD: Some NZD news dampened sentiment on the Kiwi earlier this week and price drifted down from the 0.81 level until it reached the support of the weekly 200 EMA. Some positive Chinese data then helped this pair to hold above this key support. The daily chart shows how the daily 200 EMA, at the 0.81 area, has helped to keep a lid on price action to date. Price is now trading below the Ichimoku Cloud on the daily and on the 4hr chart which is bearish. As with the A/U, any recovery with risk sentiment might help to boost the Kiwi but a fall in stocks would most likely see the Kiwi fall heavily. The monthly 200 EMA, at around 0.68, would seem to be the next level of support if this pair returns to being bearish. The weekly candle closed as a large bearish engulfing candle right on top of the weekly 200 EMA support level.

• I’m watching the weekly 200 EMA. 
• NB: There is NZD data due out first thing on Monday morning that may get price moving!

EUR/AUD: Price bounced off the daily support trend line this week. The monthly chart shows how price is now trading just under the monthly 200 EMA and the 38.2% fib retrace level from the last swing high back in 2008! The daily chart shows how the 1.5 level is proving to be some resistance. Price action here looks like an ascending triangle pattern. These are often bullish continuation patterns so I'd be watching out for any break and hold above the 1.5 level. It is trading above the Cloud on the daily and on the 4hr time frame which is bullish. The weekly candle closed as a large bullish candle. Any break, close and hold above the 1.5 and, then, the  monthly 200 EMA would have me looking for price to possibly reach the 1.75 area as that is the 61.8% fib retrace level.

• I’m watching the 1.5 level.

The Yen: U/J: Price bounced off the 97 level this week and gave a new TS signal that yielded up to 80 pips. The 97 level is a key level on the daily chart. There is a symmetrical triangle in play on the daily chart and price stalled just under this trend line and monthly pivot on Friday. Price is now trading above the Cloud on the hourly, 4hr and weekly time frames but is in the Cloud on the daily time frame so, price action might be choppy. The weekly candle closed as a bullish candle and just under the monthly pivot.

• There is an open TS signal on this pair. I’m also watching for any symmetrical triangle break here.

AUD/NZD: you will be aware that I have been tracking this pair for some weeks now as it has trended down in a descending trading channel. Price actually broke out to the upside from this daily chart channel last Wednesday; the day my son had lung surgery (thus, I missed it as a bit busy). The weekly chart shows that last week's candle was essentially a bullish engulfing candle and the first bullish candle after 8 bearish weeks. I have drawn in Fibonacci retracement levels from the last major swing, back in Feb 2011, to the most recent low. This enables one to see possible target areas for any 'Long' trades: Firstly, the 38.2% fib level coincides with the monthly 200 EMA at around 1.22. Secondly, the 61.8% fib pullback from the last swing high that, incidentally, coincides with the weekly 200 EMA at around 1.25. These both seem as good a place as any to aim for.

Silver: Price has continued to rally after bouncing, two months ago, off the 78.6% fib retrace level from the last swing high (see monthly chart). I had noted during last week how price was trading within a symmetrical triangle. Price broke out and up from this triangle on Friday and gave a move worth almost 100 pips ($1). The 4hr chart is looking rather like a 'Bull Flag' pattern. The weekly candle closed as a bullish candle.

The next major support below $20 seems to be down at $15, near the monthly 200 EMA. Silver is trading above the Ichimoku Cloud on the 4hr and daily chart but is still below the weekly and monthly charts so might be choppy but with a bullish bias! The next direction for the USD might determine how Silver moves from here though.

Gold: Price has continued to rally after bouncing, also 2 months ago, off the 61.8% fib retrace level from the last swing high (see monthly chart). I had noted during last week how price was trading within a symmetrical triangle. Price broke out and up from this triangle on Friday and gave a move worth almost 200 pips ($20). The 4hr chart is looking rather like a 'Bull Flag' pattern here too. The weekly candle closed as a bullish candle.

Price closed the week again above the key $1,300 level. The $1,300 level is the 50% fib pullback from the last swing low to swing high. The next major support after $1,300 seems to be down at the whole number, $1,000 level and, after that, at $850 in the monthly 200 EMA. Gold is trading above the Ichimoku Cloud on the 4hr, daily and monthly chart but below on the weekly chart so it might also be prone to some further choppiness. As with Silver, the next move on the USD might determine the fate of Gold.