FX Indices Review for 21/10/13

USDX

Monthly: Trend ranging / upwards. The October candle is now currently printing a bearish candle. This follows on from the bearish engulfing September candle. Note the heavy brown line indicating the monthly 200 EMA and how price has been rejected by this twice now in a ‘double top’ type of formation. The ‘neck line’ of this possible ‘double top’ is in the region of the 38.2% fib level and will be an area to watch if price retraces down that far.

Monthly Ichimoku: Price has fallen to trade within the Cloud although this region of Cloud is flat and rather thin.

Weekly: Trend up overall. Price closed lower for the week AND is still below the major support trend line and, also importantly, below the weekly 200 EMA. It is worth noting that this is the fourth weekly candle to close below the weekly 200 EMA and price had not previously closed below this key S/R level since January this year. The support of the 38.2% fib level is obvious on this chart time frame too.

Weekly Ichimoku: price is trading below the Cloud.

Daily: Trend choppy/down. Price chopped sideways within an ascending triangle until the US debt resolution was announced and then fell rather heavily and broke down from the triangle.

Daily Ichimoku Cloud chart: Price traded below the Cloud all week and is back below the Tenkan-sen line.

4hr: Trend choppy/down. Price drifted sideways until Thursday and then fell rather sharply. It couldn’t hold and close out the week above the weekly 200 EMA.

4hr Ichimoku Cloud chart: Price traded above the Cloud until Thursday and then fell to close the week out below the Cloud. This is aligned with the daily chart and suggests ‘risk on’.

EURX

Monthly: Trend down overall. The October candle is currently printing a bullish candle. I have drawn in a new monthly support trend line to capture recent price action.

Monthly Ichimoku: Price is now up trading within the bottom edge of the monthly Cloud. This Cloud is trading fairly flat and, whilst thin, is not as thin as the monthly USDX cloud.

Weekly: Trend up, overall.  Price had failed to move above the monthly 200 EMA after several previous attempts but has now made a successful break! This level has been major resistance to price movement since January and, so, this weekly close is a major development. The weekly candle closed as a bullish candle just above the monthly 200 EMA.

Weekly Ichimoku: price is trading above the Cloud.

Daily: Trend up overall. Price chopped higher again to start the week as it continued bouncing along just under the key resistance of the monthly 200 EMA. Price broke up through this key resistance level on Thursday and closed the week above this key S/R level. You can see from the daily chart that price was printing a bullish ‘inverted Head & Shoulder’ pattern and this seems to have evolved now given that the neck line seems well and truly broken.

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

4 hr: Trend ranging/choppy:  Price continued to chop sideways for the first half of this week under the major resistance of the monthly 200 EMA and within an ascending triangle. Price rallied on Thursday though and eventually broke up through the monthly 200 EMA.

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

Thoughts:

USDX: the USDX traded lower for the week.

EURX: the EURX again traded higher this week and has now broken up through a major S/R level. This is a significant development and I will be watching to see if price can hold above this key level. I still believe that this level will prove to be a demarcation level for risk appetite: a break and hold above level this for ‘risk on’ and a respect/rejection for ‘risk off’.

Thoughts: The US Government shutdown was resolved on Thursday and stocks rallied with the news. The Euro has again risen more due to this USD weakness rather than due to any Euro-based enthusiasm but this does not alter the bullish pattern emerging on the index charts.

Polarity shift: I first wrote about a looming ‘Polarity Shift’ a few weeks ago. By ‘Polarity Shift’ I refer to a predominantly negatively biased sentiment on the USD index versus a predominantly positively biased sentiment on the Euro dollar index. This sentiment shift is assessed by referring to the Ichimoku Cloud charts. This Polar Shift has not evolved fully just yet but is still in progress. There is no guarantee that this shift will continue to evolve but, the trend is definitely worth watching:

• USDX polarity: The USDX is trading below the resistance of the Ichimoku Cloud on 4hr, daily and weekly time frames and is currently falling through the monthly Cloud. The bottom of the monthly Cloud may offer some support to price action and this level needs watching. Respect of this Cloud could signal a reversal but a breach of the monthly Cloud would be a major bearish development.
• EURX polarity: The EURX is trading above the support of the Ichimoku Cloud on 4hr, daily and weekly time frames and is currently rising up through the monthly Cloud. The top of the monthly Cloud may offer some resistance to price action and this level needs watching. Respect of this top edge of the Cloud could signal a reversal but a break up through the monthly Cloud would be a major bullish development. I see the EURX as a kind of ‘risk barometer’ and the break of the monthly 200 EMA as a possible major shift in risk appetite. It is worth noting that this possible polarity shift on the Euro index seems in tandem with the one that seems to be evolving on the S&P500 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 events 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.