Saturday, September 7, 2013

FX Indices Review for 09/09/13

Monthly: Trend ranging / upwards. The new September candle is currently printing what looks most like a ‘Gravestone Doji’. These candles can be a precursor to a potential reversal when they appear at resistance levels. The 82.59, just above this candle, has been just that as a significant S/R level. The 82.59 represents the 61.8% fib pull back level from the last major swing high back in mid 2010.  This is best seen on the monthly or weekly chart. The monthly 200 EMA and the 84 area continue to be resistance above this level as well.

Weekly: Trend up overall. Price made a bullish attempt at the 82.59 level again this week but NFP seems to have helped stall its progress. Price continues to hold above the support trend line that has been in play since Aug 2011 though. The weekly candle closed as a bearish, reversal-style ‘shooting star’ candle following on from this short uptrend. These weekly candle patterns seem to have been quite accurate over recent weeks!

Daily: Trend choppy/ranging. Price failed at the 82.59 on Friday after NFP and Friday’s daily candle helped to form up a ‘tram track’ reversal pattern on the daily chart.

Daily Ichimoku Cloud chart: Price traded up towards very thin Cloud and just punched through slightly on Thursday. Price closed out the week trading below the daily Cloud though after Friday’s NFP.

4hr: Trend choppy/upwards. Price chopped upwards this week until it reached the 82.59 level. Price parked for the w/e below this level though but still above the weekly and monthly pivot and the other S/R level of 81.70.

4hr Ichimoku Cloud chart: Price traded above the Cloud all week. This is divergent from the daily chart and suggests choppiness.

Monthly: Trend down overall. The August candle closed below the weekly support trend line (the first in 13 months to do so!) and the new September candle is currently printing a bearish coloured ‘spinning top’ and trading below this support level as well.

Weekly: Trend up, overall.  Last week’s bearish engulfing candle and weekly support trend line break gave good clues as to price action for this week: bearish! 

Price had failed to move above the monthly 200 EMA back in January and has failed there again thus far. 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. This support level had held up for 22 weeks but has failed to hold price, yet again, this week. Price has closed out for the second week now below this support trend line. The weekly candle closed as a small bearish candle with long upper and lower shadows. The shadows reflect some indecision. The weekly candle also finished in a ‘star’ position meaning it had gapped below the previous candle. Being bearish in colour though means this 'star' position can’t really be read as a potential reversal sign but, it is worth noting.

The 108.5 level came back into prominence again this week. This is a major S/R level and if you cast your eyes across the weekly chart you can see how significant this level has been. This level was tested during the decline this week but it is important to note that the weekly candle closed above this key support level.

Daily: Trend up overall. Price trended down this week though, in a flag like pattern below the weekly support trend line, until it reached the support of the 108.5 level. Friday’s candle closed as a long legged Doji. This daily Doji, after two weeks of decline, suggests that a reversal might be in store as the selling pressure has waned.

Daily Ichimoku Cloud chart: Price traded in the Cloud from Monday to Wednesday but dipped down to close below the Cloud on Thursday. This is yet another bearish signal. The previous bearish Tenkan/Kijun cross has held and I’m continuing to watch this. Price closed the week below the a broadening Cloud.

4 hr: Trend ranging/choppy:  Price chopped up and down this week and ended the week slightly lower BUT above the 108.5 level.  Price seems to be trading in a broadening descending wedge pattern. These are typically bullish patterns.

4hr Ichimoku Cloud chart: Price traded below the Cloud all week. This is in alignment with the Daily Ichimoku chart and would suggest a lower Euro or even ‘risk off’.

USDX: The USDX continued to rally off the weekly support trend line this week but stalled at 82.59. 82.59 is the 61.8% fib retrace from the last swing high and, as such, is a significant S/R level. NFP seems to have stalled the progress of the USD for the time being at least.

There have been three bearish candle patterns appear on the USD index this week on the monthly, weekly and daily time frames. So, if you place any merit at all in technical analysis, it would be reasonable to suspect that price might continue to struggle next week. The ‘elephant in the room’ at the moment of course is the simmering Syrian situation and this has the potential to reverse these matters rather quickly.

It is important to understand the background sentiment behind this recent USD rally. Many such rallies in the past have been driven out of fear and have thus sparked conventional style ‘risk off’ rallies. This USD rally to date, though, is more on the back of positive US data and improved US market sentiment than on fear. As such, the simple translation to ‘risk off’ or ‘risk on’ is not as clear cut. Continued bullish moves on the USD due to optimism might see a rally with stocks but other risk instruments like the A/U, Kiwi and E/U might suffer, as might Gold and Silver. A ‘fear’ driven USD rally, due to any escalation of the Syrian conflict, would most likely see stocks join in on a decline though.

EURX: the EURX has continued to trade lower and is still well below its weekly support trend line. It is now also trading below the Ichimoku chart on the daily and 4hr time frame and this is a significant bearish development for the Euro. That being said though there are some glimmers of hope for this index: Firstly, the bearish patterns on the USD index. Secondly, the bullish descending wedge pattern that it seems to be trading within on the 4hr charts and, thirdly, the fact that price closed the week with a Friday Doji candle and above the key 108.5 level.

Final Thoughts: The latest NFP may have halted the ascent of the USD. For how long remains the question though. This, along with any continued drip feed of reasonable data, MIGHT result in a return to the more conventional correlation of ‘risk on’ and risk off’. I’ll be watching levels on the indices for any sign of this possibility:
  • Risk on: EURX holding above 108.5 and USDX holding below 82.59
  • Risk off: EURX falling below 108.5 and USDX rallying above 82.59

Warning: The tension across the Middle East with the Syrian conflict has the potential to shift market sentiment and undermine all technical analysis.

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 or Middle East 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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