USDX
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.
EURX
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’.
Thoughts:
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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