FX Indices Review for 04/03/13

Monthly: Ranging upwards. The February candle closed as a large bullish engulfing candle. January’s ‘inverted hammer’ candle was right on with pointing to possible bullish reversal!
Weekly: Trend up overall. The weekly support trend line is still supporting price. 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 USDX has retraced back up towards the 81.70 level. This has added some balance and symmetry to the left hand side of this pattern. The 81.70 level was key this week. Price has now broken, closed and held above this level and this suggests continued bullish momentum and might undermine the developing H&S pattern.  I would think a break, and long term hold, above the 82.59 (61.8% fib level) would void the H&S pattern. The weekly candle closed as a bullish candle.
Daily: Up. Price has essentially rallied all of February.
Daily Ichimoku Cloud chart: Price has held up above the daily Cloud and broken away quite strongly.
4hr: Up. Price chopped up and down around the key 81.70 S/R level for much of the week in a ‘bull flag’ like pattern. Price broke up and rallied from this flag to stall just under the next resistance level of 82.59. The 82.59 level is the 61.8% fib retrace from the last swing high back in March 2010 so, it is significant.  Price finished the week just under this key level.
4hr Ichimoku Cloud chart: Price has traded above the Cloud all week. This is in alignment with the daily chart and supportive of ‘risk off’ momentum.
Monthly: Trend down overall but the previous 6 months were bullish candles.  The most recent February candle closed as bearish and as an ‘inside candle’. This reflects indecision or consolidation. This is the first bearish monthly candle in 7 months. Price has failed to move up above the monthly 200 EMA and this level continues to be resistance for the index.  A bull support trend line is still in place and I have extrapolated this out as part of a new monthly triangle pattern to show the support level.
Weekly: Trend up but has stalled. Price has failed to move above the monthly 200 EMA. This has been major resistance so it is no surprise that price has paused under this level. Price action has been quite parabolic for ‘risk on’ until recently and the current pause, with the possibility of further reversion to the mean or the trend line, would not be out of order as part of any continued longer term bullish price action for. The weekly candle closed as a large bearish candle. The current chart print could almost be considered as a ‘bull flag’ pattern though.
Daily: Trend ranging upwards. Price seems to have been consolidating under the monthly 200 EMA for most of February in a descending broadening flag pattern. These are bullish patterns and give this index a ‘bull flag’ appearance. There is support under current price in the form of the weekly 200 EMA.
Daily Ichimoku Cloud chart: Price is still trading just above the Daily Cloud but has been consolidating in a narrow range for the last 3 weeks. It is edging closer towards the Cloud though.
4 hr: Trend ranging down. Price fell at the start of the week and has been trading in an upward trend channel for most of the time since then. This channel is set within the larger ‘flag’ like pattern from the daily/weekly chart. The weekly 200 EMA has been a key level here all week and offered a fair bit of support. Price closed for the week just above this support level.
4hr Ichimoku Cloud chart: Price has traded under the Cloud for most of this week. This is divergent from the daily chart so price action may be choppy.

Thoughts: Ichimoku divergence has been with us for the whole of February making for choppy trading and few TS signals.
The Cloud charts: Both USDX Cloud charts, the daily and 4hr, are currently aligned to support ‘risk off’ momentum. The EURX charts are divergent which suggests possible further choppiness, at a minimum. The only chart still aligned for ‘risk on’ is the daily EURX Cloud chart BUT it is edging closer to its Cloud. I will be looking to see if that alignment changes to ‘risk off’ at all. I’ll also be watching the USDX charts to see if they remain aligned for ‘risk off’.
EURX Daily Chart: The main signal that is contrary to possible reversal to ‘risk off’ is the look of the EURX on the daily chart. It still looks a bit ‘bull flag’ like, as if it is just pausing before making another attempt at the weekly 200 EMA just above current levels. So, I will be watching the trend lines I have here to see if they might be breached.
I will look for ‘risk on’ trades if:
  • the USDX turns bearish and closes below the 81.70 level AND if
  • the EURX turns bullish and breaks back above the bear trend line on the daily chart.

I will look for ‘risk off’ trades if:
  • the USDX turns bullish and holds above the 81.70 level AND if
  • the EURX turns bearish and holds back down below the weekly 200 EMA 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.