Monthly: Ranging upwards. A new bull support trend line is in play. The new January candle is less bullish than last week and currently printing an inverted hammer candle. Price rallied again this week to reach back up to the 50% fib level from the last major swing high back in June 2010! Price closed again for the week well below this key level though.
Weekly: Trend up overall. The H&S pattern is still printing on the weekly chart. The ‘neck line’ of this pattern is at 78.81 which is equivalent to the 38.2% fib retrace level from the last major swing high back in mid 2010! The H&S neck line has not been reached yet though. Price would need to pierce the bull trend line first. The left hand shoulder of this pattern took 5 months to form and the right hand shoulder has only been forming for 3 months so, there is still time for this possible pattern to evolve. The weekly candle closed as a large bearish engulfing candle.
Daily: Ranging. Price made two attempts this week to try to break up and hold through the 80.70 level but was not successful. Price closed the week back below the weekly 200 EMA and monthly pivot but above the bull trend line.
Daily Ichimoku Cloud chart: Price is trading back below the daily Cloud.
4hr: Ranging now down. Price made two attempts this week but failed to hold up above previous resistance of 80.70. The ‘double top’ seems to have evolved nicely. Price closed back below the weekly 200 EMA and monthly pivot but above the bull trend line.
4hr Ichimoku Cloud chart: Price is trading back below the 4hr Cloud and this is now in alignment with the daily chart and optimum for ‘risk on’ trading.
Monthly: Trend down overall but the last 5 months were bullish candles. The new January candle is now larger than last week and bullish as well. Price is now trading within just the one symmetrical triangle pattern and this is on the monthly chart. The upper bear trend line of this triangle dates back to 2009 and price is getting very close to this breakout level. A bull support trend line is still in place.
Weekly: Trend down but now up. The bullish ‘inverse Head & Shoulder’ pattern has held up and delivered lots of pips over the last 6 weeks. This dovetails in nicely with the bearish H&S pattern I see forming on the USDX. Price is still trading above the bullish ‘neck line’ of this inverse H&S pattern. Price is trading within a symmetrical triangle and the upper trend line, which is aligned with the weekly 200 EMA, is not too far above current price now. The confluence of these two resistance levels will be a major test for the EURX this week and one to be closely watched. The weekly candle closed as a large bullish engulfing candle. Last week’s ‘inside candle’ did, indeed, end up pointing to consolidation before continuation.
Daily: Trend ranging upwards. Price broke out from trading within a wedge pattern, the 6th such wedge or flag pattern that has appeared over recent weeks, after the ECB news release last Thursday.
Daily Ichimoku Cloud chart: Price is trading above the Daily Cloud and is now back above the Tenkan-sen and Kijun-sen lines.
4 hr: Trend ranging. Price has been bullish for much of the last 8 weeks. Price broke out from the bullish descending broadening wedge pattern after the ECB news release last Thursday.
4hr Ichimoku Cloud chart: Price is trading above the Cloud on the 4hr chart. This is in complete agreement with the 4hr chart and makes for optimum ‘risk on’ trading.
Thoughts: Last week started with Ichimoku Cloud divergence and was thus rather choppy and with few trend signals. The USDX traded down and then up but the EURX traded mostly sideways. Things changed though on Thursday with very positive Chinese data and, then later, with comments from the ECB and Mario Draghi. This sent the markets back to ‘risk on’.
This week: The charts are aligned for optimum ‘risk on’ trading. There are some TS signals already in place. The EURX is fast approaching a major resistance level in the form of a bear trend line, dating back to October 2009, AND the weekly 200 EMA. I would expect price to stall here, at a minimum, and it could even possibly reverse from this huge level. The USDX is also approaching major support in the form of the weekly bull trend line and the weekly chart H&S neck line level. As stated, I will be expecting some choppy action around these levels and possibly even reversal. They could though prove to be watershed moments where the flood gates open for ‘risk on’.
I am aware of the precarious fundamentals from various global economies but, as I mentioned mid week, there also seems to be a mood of ‘post apocalyptic trading fatigue’. By this I refer to the situation where many folk no longer think ‘the sky is going to fall in’, are sick of sitting on the trading sidelines and just want to get on and trade/invest.
Ichimoku thoughts: Continuing Cloud and Index divergence resulted in choppy trading for most of the week, as suspected. The positive sentiment on Thursday though kick started some ‘risk on’ momentum which tipped the Ichimoku charts back into convergence and optimum conditions for ‘risk on’ trading. This remains the case to start off next week.
I will look for ‘risk on’ trades if:
- the USDX remains bearish and remains below the 80.70 level AND if
- the EURX remains bullish, holds above the weekly chart’s ‘inverse H & S’ pattern neck line and holds up and out from the wedge pattern.
I will look for ‘risk off’ trades if:
- the USDX returns to being bullish and breaks, closes and holds back above the 80.70 level AND if
- the EURX returns to being bearish.
As always, Fundamentals, by way of Euro zone dramas and news announcements, continue to be triggers for price movement on the indices. These events can always have the potential to undermine all Technical analysis.