FX Indices review for 28/10/13

USDX

Monthly: Trend ranging / upwards. The October candle is still 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 pull back level from the last major down move and needs close monitoring this week.

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 fifth 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. The weekly candle closed as a bearish candle.

Weekly Ichimoku: price is trading below the Cloud.

Daily: Trend choppy/down. Price traded lower this week. Friday’s candle was an 'indecision' style Doji and this may signal a trend pause or, even, a possible reversal.

Daily Ichimoku Cloud chart: Price traded below the Cloud and the Tenkan-sen line all week. Note how the Tenkan-sen and Kijun-sen lines have fused though. I’m watching for any new cross here which would be a bullish cross. This would be deemed a weak signal though given that the cross would form up below the Cloud.

4hr: Trend choppy/down. The down trend has stalled though above a major S/R level:

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

EURX

Monthly: Trend down overall. The October candle is still printing a bullish candle.

Monthly Ichimoku: Price is now up trading in the monthly Cloud. This Cloud, 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 earlier throughout the year. The index made a successful break two weeks ago and has managed to hold above this level again throughout this last week! This level has been major resistance to price movement since January and, so, this break is a major development. The weekly candle closed as a bullish candle above the monthly 200 EMA.

Weekly Ichimoku: price is trading above the Cloud.

Daily: Trend up overall. Price traded higher this week as it held above the key S/R level of the monthly 200 EMA. This previous ‘resistance’ level should now form up into new ‘support’. You can see from the daily chart that the bullish ‘inverted Head & Shoulder’ pattern evolved.

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

4 hr: Trend up overall:  Price drifted higher all week above the major S/R level of 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. It is currently hovering above major support in the form of the 78.80 region and this will be the level to watch next week. The 78.80 is a ‘neck line’ region of a possible monthly chart ‘double top’. FOMC is scheduled for Wednesday of next week and will most likely determine the next major move with this index.

EURX: the EURX again traded higher this week and has held above the major S/R level of the monthly 200 EMA. This remains a significant development and I will be watching to see if price can continue to hold above this key level. I still believe that this level will prove to be a demarcation level for risk appetite: a continued hold above this for ‘risk on’ and a respect/rejection for ‘risk off’. I am watching to see whether the monthly candle can close out above this key S/R level. The Euro has continued to rise 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.

Final Thoughts: Ichimoku Alignment: Ichimoku alignment for ‘risk on’ kicked in on Thursday 17^th October and has held since that time.

Polarity shift: I wrote about a looming ‘Polarity shift’ a few weeks ago. By ‘Polarity shift’ I refer to a predominantly negative biased sentiment on the USD index versus a predominantly positive biased sentiment on the Euro dollar index. This sentiment shift is gauged by referring to the Ichimoku Cloud charts. This polar shift has not evolved fully but is still in progress at the moment. 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 monthly Cloud could herald a reversal but a breach of the 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 through the monthly Cloud would be a major bullish development. I see the EURX as a kind of ‘risk barometer’ and the recent 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 is 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.