FX Indices Review for 23/09/13

USDX

Monthly: Trend ranging / upwards. The September candle is currently printing a large bearish engulfing candle. The monthly 200 EMA and the 84 area continue to be effective resistance.

Weekly: Trend up overall. Last week’s bearish engulfing candle was on the money...yet again. These weekly candle patterns sure continue to be rather accurate! Price fell this week after FOMC and broke through the long term weekly support trend line and the weekly 200 EMA. The weekly candle closed as a large bearish candle below this support trend line.

Daily: Trend choppy/ranging. Price gapped down to open the week but managed to hold just above the weekly support trend line until FOMC. Price then plunged through this support, as well as that of the weekly 200 EMA, once it was realised that there would be no start to QE tapering just yet. The index retraced a bit to test the broken weekly 200 EMA but made little further advance back up from there. In fact, the index closed for the week at 80.47 sitting right on top of the weekly 200 EMA, which also closed at 80.47!

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

4hr: Trend choppy/down. I noted last week how I saw a bit of a Head & Shoulder pattern setting up here on the 4hr chart. The neck line for this H&S corresponded to the weekly support trend line. Price drifted sideways prior to FOMC this week but then fell heavily through this neck line, thereby, bringing the H&S to life. The fall then stalled a bit and even tried to break back up through the weekly 200 EMA but, without much luck. It did manage to close right on top of this S/R level though.

4hr Ichimoku Cloud chart: Price traded below the Cloud all week. This is in alignment with the daily chart and supports short USD or ‘risk on’.

EURX

Monthly: Trend down overall. The current September candle has evolved over the weeks from printing a bearish spinning top, a bullish coloured ‘spinning top’, and is now printing a bullish engulfing candle.

Weekly: Trend up, overall.  Price had failed to move above the monthly 200 EMA after several attempts but seems to be having another go. This level has 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 weekly support trend line. This support level had held up for 22 weeks but was broken recently. Price fell away after that bearish break but only made it down as far as the previous S/R level of 108.5. 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. Price has rallied since forming a bottom there and now looks set to try and take on the monthly 200 EMA once again. The weekly candle closed as a bullish candle just below the junction of the broken trend line and monthly 200 EMA.

Daily: Trend up overall. Price continued to trade up and out from the broken flag pattern of the previous week. Price had stalled somewhat at the monthly pivot but, then, FOMC gave it the boost it needed to get over this resistance. Price is now back up to trading just under the key resistance of the monthly 200 EMA again. You can see from the daily chart that price is printing what looks like a ‘triple top’ pattern. It is worth noting, though, that the previous two ‘tops’ did not come with any supporting TS signal to trade ‘long’ on the daily chart. The current ‘top’ is printing a TS signal to ‘long’ on the daily chart so that just might auger well for the index this time around.

Daily Ichimoku Cloud chart: Price rallied to close just out of the Cloud on Wednesday and, then, Thursday gave the first day where a full candle closed up and out of the Cloud.  The previous bearish Tenkan/Kijun cross has now closed and a new bullish cross formed on Thursday’s candle close.  This bullish cross occurred within the Kumo though so is considered a ‘neutral cross’. 

4 hr: Trend ranging/choppy:  Price was held in check under the 4hr 200 EMA and monthly pivot until FOMC. The index then rallied for the rest of the week until it reached back up to near the major resistance of the monthly 200 EMA.

4hr Ichimoku Cloud chart: Price opened the week just above the Cloud but had a brief dip into the Kumo before FOMC gave it the necessary thrust to move it up and out of the Cloud.  It finished the week above the Cloud and this is in alignment with the Daily Ichimoku chart and supports long Euro or ‘risk on’.

Thoughts:

USDX: The USDX closed lower for the week following FOMC. Price fell to close below major weekly support and this is a significant bearish move.

EURX: the EURX traded higher this week but, again, this was more due to USD weakness than to any legitimate Euro strength.

Final Thoughts: The Ichimoku charts are aligned for ‘risk on’ on both the 4hr and daily charts on both indices. This is a bullish signal for ‘risk on’ and I’m looking for TS signals in line with this sentiment. This ‘risk on’ sentiment is supported by Tenkan/Kijun crosses on the daily charts of both indices and by a new TS ‘long’ signal on the EURX daily chart. The monthly 200 EMA might prove to be strong resistance again for the EURX though and thwart 'risk on' sentiment. A failure of the EURX to break through this major resistance level could prove to be a significant turning point for the index and I am keeping an open mind and on the lookout for that potential eventuality.

The fall in the USD this week following FOMC was accompanied by a rally across most stocks, the E/U, A/U and Kiwi and Gold and Silver in a return to more of a typical ‘risk on’ correlation. Stocks sold off following this move though as the USD tried to recover some of its losses and, also, as other US concern around the ‘US debt ceiling’ resurfaced. For all of the ‘end of week’ stock market gloom though the S&P500 did manage to close above the key 1,685 support!

Thus, ever mindful of the fragile and fickle nature of these markets, I continue to watch for any return of typical ‘risk on’ or ‘risk off’ types of moves.

Warning: The simmering tension across the Middle East due to the Syrian conflict has the potential to rear its head again and shift market sentiment, thereby, undermining ALL technical analysis. Similarly, this weekend’s German election poses a fundamental risk to any technical rally with the EURX and the result may significantly impact this index.

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.