FX Indices Review for 03/06/13


Monthly: Trend ranging / upwards. The previous monthly candle was a bearish engulfing and this month’s candle closed as bullish engulfing! Price briefly punched up through the strong resistance of the monthly 200 EMA and the 84 level but didn’t manage to close above this.
Weekly: Trend up overall. The weekly support trend line is still supporting price. The weekly candle closed as a bearish candle. The possible bearish ‘double top’ seems like it could be back in play now given that price has closed below the 84 S/R level.
Daily: Trend ranging/up. Price looked to be printing either a ‘bull flag’ or bearish ‘ascending broadening wedge’ pattern and, for now, it seems that the bearish pattern has evolved.

Daily Ichimoku Cloud chart: Price traded above the Cloud all week BUT is now back below the Tenkan-sen line.
4hr: Trend choppy/ranging. Price chopped sideways for most of the week above the wedge/flag bottom trend line. Price broke down through this level on Thursday and closed below the trend line and below the 84 level.
4hr Ichimoku Cloud chart: Price started the week in the 4hr Cloud, then moved above but finished the week below the Cloud. This is divergent from the daily chart and suggests further choppiness.
Monthly: Trend down overall but 8 of the last 10 months were bullish. The May candle closed as a bullish candle but was small and with a ‘spinning top’ look to it.
Weekly: Trend up, overall. Price failed to move above the monthly 200 EMA back in January. This level had been major resistance so it was no surprise that price had paused here. Price action had been quite parabolic for ‘risk on’ and subsequently pulled back to the mean of the support trend line. Price bounced off this major support level and has held up for the last 9 weeks. The weekly candle closed as a spinning top candle and this reflects some indecision for the index. The current weekly chart print still looks to have evolved as a ‘bull flag’ pattern. Price has now broken up and out from this flag pattern suggesting that perhaps the retracement period might be over and that the bullish movement might continue. Price is still sitting above this breakout area but is now back to sitting on the 108.5 S/R level.  The significance of this 108.5 level can be seen if you cast your eyes across the weekly chart. The failure to break and hold up through this level, after a few recent attempts, might end up proving to be bearish for the EURX. There is also still a possible bullish inverse Head and Shoulder’ pattern brewing here. The neck line looks to be at around the 108.5 level so there would need to be a decisive close and hold above this level to enable it to fully evolve.
Daily: Trend ranging. Price chopped around again for most of this week again at the top edge of the trading channel formed by the 107.5 and 108.5 levels. This area is shaded in pink on the charts. This is the 8th week of such choppy, range bound action. Like last week, price broke out of this narrow zone on Thursday but failed to hold. Friday’s candle closed as a bearish candle with price closing right on the 108.5 level.
Daily Ichimoku Cloud chart: Price chopped sideways above the Cloud all week.  It has finished the week above the daily Cloud and right on the 108.5 level.
4 hr: Trend ranging. Price action chopped around either side of the 108.5 level all week and formed up into a smaller triangle pattern within the larger trading channel. Price made a false bullish break out of this triangle on Thursday but retreated to close back within its boundaries.
4hr Ichimoku Cloud chart: Price started the week above the Cloud but ended up chopping around within the Cloud for much of the week. Price finished the week trading in the Cloud. This is divergent from the daily chart and suggests further choppiness.
Choppy markets + Ichimoku: The Ichimoku charts are still divergent and this suggests continued choppiness. Such conditions are better suited to shorter time-frame trading during the US session than to longer term (eg 4 hr) chart trading.
The EURX: The EURX has held up surprisingly well again this week and has managed to close up on the 108.5 level. It just doesn’t seem to give up trying to get up and over this hurdle level. The 108.5 has been proving to be a significant challenge though and has managed to contain price for much of the last 8 weeks. Any break and continued hold above this 108.5 level would suggest that there might be some follow through with this bullish reversal and, possibly, a swing back towards a more typical form of ‘risk on’. A move back down below the Daily Ichimoku Cloud would be a very bearish signal though. I continue to watch these two areas on the EURX: the 108.5 level above current price AND the support zone represented by the Daily Cloud below current price. These remain the two key levels to watch on the EURX.
USDX: The USDX has closed bearish for the week and I’m watching out for any possible double top formation here. Employment data due out next week might drive the direction of the USD though. Positive data might send price back up on thoughts that the Fed might start tapering QE.

Final word:
Price on the USDX and EURX is trading very close to the Ichimoku Cloud on both their daily and 4hr chart time frames. Thus, momentum could shift quite easily to either a ‘risk off’ or ‘risk on’ alignment. I am waiting for Ichimoku Cloud alignment. I see this as being somewhat similar to any other seasonal business. You just have to wait patiently and, as the saying goes, ‘make hay when the sun shines’.
Both stocks and currencies have chopped around again this week. News and data releases seem to have an increasing impact on price movements with both instruments. 
The big stock sell off from late on Friday may be the start of a new bearish move here or it could have been more due to month end activities. We need a little more time to see if a new trend emerges on the stocks daily charts. As the saying goes, ‘one swallow doesn’t make a summer’. This pause/pullback could also evolve into a small bull flag pattern before the next move up. That is why it is important to wait to see what trend does eventually emerge. Yes, we’ve had a 3/7 and now a 7/21 EMA cross on the S&P500 BUT we’ve had a few of these before without major upset (see arrows on chart below) AND there is still a bull daily trend line intact: 
So, I’m waiting to see how stocks and currencies both emerge from this period and which path they might take. I have no idea just now what this will be but I will be watching for clues and, once a clear new trend emerges, I’ll try to grab some of it.
I do note that both the A/U and Kiwi closed below key support levels so traders might now happily assume it is safe to take short positions on these two pairs. However, there was better than expected data out of China on Saturday and this might impact on the bearish sentiment for these pairs. 

PS: I have been delayed in Adelaide and may not get to post my Trade Week Analysis blog until Monday.

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 based dramas 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.