FX Indices Review for 04/11/13

USDX

Monthly: Trend ranging / upwards. What a difference a week makes! The October candle closed as a bullish coloured, but indecision style, Doji candle with a long lower shadow. Last week this candle was printing a large bearish candle! This Doji could be pointing to a possible bullish reversal given that it has appeared in a downtrend. 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 price continued its bounce up from this level this week. This ‘neck line’ region of 78.80 has been significant support over recent times. Price has traded down to this level a number of times recently but no monthly candle has closed and held below this level since the end of 2011!

Monthly Ichimoku: Price bounced off the bottom region of the monthly Cloud and closed the month just above the top edge of the Cloud. The new monthly November candle is trading above the Cloud.

Weekly: Trend up overall. Price rallied this week and, whilst still below the broken support trend line, it has now closed back above the weekly 200 EMA. The support offered by the 'neck line' 38.2% fib level is obvious on this chart time frame too. The weekly candle closed as a bullish engulfing candle.

Weekly Ichimoku: Price is still trading below the Cloud for now.

Daily: Trend choppy/down. Price traded higher each day this week. I’ve drawn in a daily chart bear trend line that has contained price since June. Price is currently trading up and testing this trend line. A break and hold above this trend line would signal the end of the recent bearish downtrend.

Daily Ichimoku Cloud chart: Price has moved up to trade just below the daily Cloud and back above the Tenkan-sen line. I’m watching for any new bullish Tenkan/Kijun cross here.

4hr: Trend choppy/down. Price traded higher all week in an almost ‘exponential’ style pattern.

4hr Ichimoku Cloud chart: Price moved up through the Cloud during the week. This is not aligned with the daily chart.

EURX

Monthly: Trend down overall. The October candle closed as a bullish candle but below the monthly 200 EMA. Price is still trading within a monthly triangle pattern.

Monthly Ichimoku: Price closed out the month back below the monthly Cloud. The new November monthly candle is bearish and trading below the Cloud.

Weekly: Trend up, overall.  Price had failed to move above the monthly 200 EMA after several previous attempts earlier throughout the year. There were two weekly candle closes above this key S/R level but price closed back below this level this week.  It is not surprising to see price fall back to test this previously broken S/R level of the monthly 200 EMA. What is important now, though, is whether price continues to fall from here or, whether, this fall stalls and price bounces back up from this key S/R zone. The weekly candle closed as a bearish engulfing candle and below the monthly 200 EMA but price is still above the weekly support trend line, albeit only just.

Weekly Ichimoku: Price is trading above the weekly Cloud.

Daily: Trend up overall. Price fell heavily from Thursday to end up back below the monthly 200 EMA. Price bounced up off the support trend line on Friday to close the week just above this key level.

Daily Ichimoku Cloud chart: Price is still trading above the Cloud but is now below the Tenkan/Kijun lines.

4 hr: Trend up overall but has turned:  Price drifted higher whilst above a support trend line until Thursday. Price then fell through this trend line and through the monthly 200 EMA and monthly pivot. The bull triangle trend line seemed to offer some support on Friday though.

4hr Ichimoku Cloud chart: Price fell down through the Cloud on Thursday to finish the week below the Cloud. This is not aligned with the daily chart.

Thoughts:

USDX: the USDX traded higher for the week on the back of some good data and renewed thoughts about imminent tapering of QE.  Price bounced off the major support of the 78.80 region. The 78.80 is the ‘neck line’ region of a possible monthly chart ‘double top’. Price rallied through the previously broken S/R level of the weekly 200 EMA and up to test a daily bear trend line. This will be a key area to watch next week as a break of this bear trend line would suggest a reversal of the downtrend that has been in play since June.

EURX: the EURX traded lower this week due to USD strength and concern about possible further Euro easing. This resulted in the index falling back below the major S/R level of the monthly 200 EMA. 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’. The monthly/weekly chart triangle support trend line is just below the monthly 200 EMA. Price is currently wedged between these two key levels. A breach of this triangle trend line would be a very bearish signal and this level needs watching next week. There is ECB interest rate news next Thursday which may help to determine the direction of the next major trend for the Euro.

Ichimoku Alignment: The index charts are no longer aligned for ‘risk on’.

Polarity shift: I have discussed a possible ‘Polarity shift’ over the last few weeks. 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 had not fully evolved and has been seriously undermined now given the significant sentiment shift that started last Thursday.

USDX polarity: I mentioned last week that the bottom of the monthly Cloud may offer some support to price action and that respect of this monthly Cloud could herald a trend reversal. This is what we have seen evolve this last week.  The USDX is now trading back above the support of the Ichimoku Cloud on 4hr and monthly Cloud whilst still below on the daily and weekly time frames.

EURX polarity: The monthly Cloud offered resistance to price action this week and price is now trading back below this S/R level. The EURX is trading above the support of the Ichimoku Cloud on daily and weekly time frames but is now below the Cloud on the 4hr and monthly time frames.

I see the EURX as a kind of ‘risk barometer’ and the failure of this index to close out the month above this key level is quite significant. This may end up being just a temporary pull back and a simple re-test of a broken key S/R level but it might also signal a significant reversal in ‘risk appetite’.

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.