FX Indices Review for 04/02/13

Monthly: Ranging upwards. A weekly bull support trend line has been broken. The January candle has closed as an inverted hammer candle though. These candles, when they appear in a downtrend like this, often point to a bullish reversal. The new February candle is currently printing a Doji candle. So, some mixed signals here, for sure, as price is wedged between the broken support trend line and the H&S neckline.
Weekly: Trend up overall but the weekly support trend line has now been broken. The H&S pattern is still printing on the weekly chart and forming up more fully. 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 left hand shoulder of this pattern took 5 months to form and the right hand shoulder has only been forming for 4 months so, price may still chop around a bit more before possibly breaking down further. The weekly candle closed as a large bearish candle.
Daily: Ranging. Price traded down all week. Friday’s candle was a bullish candle. It is not unusual to see price test a broken trend line before any continuation move though.
Daily Ichimoku Cloud chart: Price is trading below the daily Cloud.
4hr: Ranging to down. Price opened the week near the weekly 200 EMA and weekly pivot but broke down throughout the week. Price broke through the weekly support trend line on Thursday. The last two 4hr candles were bullish though and seem to be trying to re-test the broken trend line.
4hr Ichimoku Cloud chart: Price is trading below the 4hr Cloud. This is in alignment with the 4hr chart and conducive to further ‘risk on’.
Monthly: Trend down overall but the last 6 months were bullish candles. The January candle closed as very bullish candle indeed! The new February candle is bullish too but a fair bit smaller at this new stage. Price has now broken out from trading within a symmetrical triangle pattern on the monthly chart. The upper bear trend line of this triangle dates back to 2009 though so is very significant. A bull support trend line is still in place. Price is edging up closer to the monthly 200 EMA and this may help to stall current momentum a bit or, even, be a catalyst for reversal.
Weekly: Trend up. The bullish ‘inverse Head & Shoulder’ pattern has held up and delivered HUNDREDS of pips over the last couple of months. This continues to dovetail nicely with the bearish H&S pattern I see forming on the USDX. Price is still trading above the broken ‘neck line’ of this bullish inverse H&S pattern. Price has also broken out and up from trading within the symmetrical triangle.  This break coincided with a break up, and over, the weekly 200 EMA as well.  This is a significant break upwards for the EURX. The weekly candle closed as a bullish candle above the 108.5 S/R level. Momentum stalled a bit as price reached the monthly 200 EMA though.
Daily: Trend ranging upwards. Price has been bullish for much of the last 3 months. 
Daily Ichimoku Cloud chart: Price is trading above the Daily Cloud.
4 hr: Trend ranging/ up. Price finally broke up and over the recent S/R level of 108.5 during the week and has rallied from there.
4hr Ichimoku Cloud chart: Price is trading above the Cloud on the 4hr chart. This is in complete agreement with the daily chart and augers well for continued ‘risk on’ trading.
Thoughts: Last week opened with Ichimoku alignment on both Indices. This alignment started at  the end of the prior week. This enabled a huge haul of pips from the pairs that I watch. I have been talking about this phenomenon for MONTHS and it finally evolved and paid off with hundreds of pips. My TradeSpotting (TS) system is generally very reliable but, with the added context of the Ichimoku charts, is now rather spectacular! This Ichimoku alignment continues so I’ll be looking for ‘risk on’ signals but mindful of possible pauses, or even minor pullbacks, as a few road blocks appear for both indices.
There are HUGE resistance zones looming on the horizon for both the EURX and USDX. The EURX has the monthly 200 EMA just above current price. The USDX has the neckline of the weekly chart ‘Head and Shoulder’ pattern just below current price. Both of these barrier levels could help to stall momentum, making for choppy price action, or even possibly reverse the current trend. A breach of these levels would be a massive ‘vote of confidence’ for continued ‘risk on’ though. The inverted hammer candle on the USDX for January may also point to some possible hesitation with its current fall and, thus, to further ‘risk on’.
‘Risk on’ update: Both the A/U and G/U have been experiencing a variety of issues of late so my focus for ‘risk on’ pairs has narrowed to the Euro and Yen pairs plus the Kiwi.
I will look for ‘risk on’ trades if:
  • the USDX remains bearish and remains below the weekly bull trend line  AND if
  • the EURX remains bullish and holds above the 108.5 level.

I will look for ‘risk off’ trades if:
  • the USDX returns to being bullish and breaks, closes and holds back above the weekly bull trend line  AND if
  • the EURX returns to being bearish and breaks back down below the 108.5 level.

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.