FX Indices Review for 11/11/13

USDX

Monthly: Trend ranging / upwards. The October Doji candle suggested a possible bullish reversal and that is what we have seen this week. 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 has continued its bounce up from this level. This ‘neck line’ region of 78.80 has been significant support over recent times and, although price has traded down there a number of times, no monthly candle has closed below this level throughout either 2012 or so far in 2013.

Monthly Ichimoku: Price has continued its bounce up and off the monthly Cloud.

Weekly: Trend up overall. Price traded higher this week and closed above the bear trend line. The support offered by the 38.2% fib ‘neck line’ level is still obvious on this chart time frame. The weekly candle closed as a bullish candle.

Weekly Ichimoku: Price is now trading just below the weekly Cloud.

Daily: Trend choppy/down. Price chopped sideways for most of this week as it traded near the 80.70 level (the 50% fib pull back level) and just under the bear trend line. Some USD positive data helped to boost this index and it eventually broke up to close the week above the bear trend line but just under the daily 200 EMA.

Daily Ichimoku Cloud chart: Price has now moved up to trade above the daily Cloud. There was a new bullish Tenkan / Kijun cross after Thursday’s close although this is deemed a ‘weak’ signal as the cross evolved below the Cloud.

4hr: Trend choppy. Price chopped around the 80.70 region and just under the bear trend line until Thursday. Price then broke up though this resistance. I noted during the week how this chart was supporting a possible bullish 'Cup'n'Handle pattern. This might be evolving now:

4hr Ichimoku Cloud chart: Price traded above the Cloud all week. A new bullish Tenkan/Kijun cross evolved on Friday and this signal is deemed 'strong' as it evolved above the Cloud. This is aligned with the daily chart and suggests long USD.

EURX

Monthly: Trend down overall. The new November candle is currently printing an, essentially, bearish engulfing candle and is also attempting to break down from the monthly triangle pattern.

Monthly Ichimoku: The new November monthly candle is still bearish and trading below the Cloud. You can see how the monthly Cloud has offered some resistance to the index.

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 recently but price has had another close below this level this week. Last week’s bearish engulfing candle pointed to lower prices this week and that is what has evolved. This week’s candle is another bearish candle and, more significantly, it has closed below the monthly 200 EMA AND below the triangle support trend line. This triangle trend line has been in play since July 2012 and, thus, this break is a significant breach of support.

Weekly Ichimoku: Price is still trading above the weekly Cloud but is now below the Tenkan and Kijun lines.

Daily: Trend choppy. Price continued to trade lower this week and eventually fell though the triangle support trend line on Tuesday. The previous S/R level of 108.5 offered some support though this week. This importance of this 108.5 level is best seen on the weekly chart.

Daily Ichimoku Cloud chart: Price is now trading below the Cloud.

4 hr: Trend choppy/down:  Price chopped sideways/lower this week around the triangle support trend line until Thursday. Price then fell quite heavily following the ECB interest rate cut announcement. Bullish USD sentiment following Friday’s NFP didn’t help this out either.

4hr Ichimoku Cloud chart: Price traded below the Cloud all week.  This is aligned with the daily chart and suggests short Euro.

Thoughts:

USDX: the USDX traded higher for the week on the back of some good data and continuing thoughts about imminent tapering of QE.  Price has now closed up through a daily bear trend line that has been in play since June 2013.

EURX: the EURX traded lower this week due to a combination of positive US data boosting the USD and the ECB rate cut. This resulted in the index falling further below the major S/R level of the monthly 200 EMA and, also, below the major support trend line of the monthly chart triangle pattern. I still believe that a hold below these two key levels will prove to be a demarcation level for continuing risk appetite in FX. I see a continuing hold below these levels as a warning of growing ‘risk off’ momentum.

Ichimoku Alignment: The EURX and USDX charts are aligned for long USD and short Euro. Previous periods of such alignment would often result in a general ‘risk off’ sentiment with falling stocks, Aussie and Kiwi etc. We saw evidence on Friday though of how USD strength and the thought of ‘tapering’ evolved into positive sentiment across US stock markets.  This didn't translate quite the same across the FX markets as the Aussie, Kiwi, Gold, Silver and E/U didn't fare too well. I’m not sure if this 'risk appetite' divergence between stocks and FX is the beginning of a new market paradigm or, whether, one is a little late following the other. I’m watching for further clues here.

Polarity shift: I have discussed a possible ‘Polarity shift’ over recent weeks. The ‘Polarity shift’ I was watching for was one towards a predominantly negative biased sentiment on the USD index and a predominantly positive biased sentiment on the Euro dollar index. This sentiment shift was being gauged by referring to the Ichimoku Cloud charts. This polar shift failed to evolve though and has been even further undermined now given the significant sentiment shift with the recent USD rally and corresponding Euro pull back. This shift started following the recent FOMC.

I still see the EURX as a kind of ‘risk barometer’ and the failure of this index to hold above the key S/R level of the monthly 200 EMA is quite significant. The weekly close below the major support triangle trend line has only added to this new bearish sentiment.

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.