FX Indices Review for 06/05/13


Monthly: Trend ranging upwards. The April monthly candle closed as a bearish engulfing candle. The monthly 200 EMA is still above current price, at around the 84 level, and helping to keep a lid on this! The very new monthly candle is printing a small bullish candle. 
Weekly: Trend up overall. The weekly support trend line is still supporting price. The weekly candle closed as a hammer style candle. These often suggest a bullish reversal when they appear in a downtrend but price action here has been as much sideways as down so this may not have any real significance. The current chart still looks to be forming a bearish ‘double top’ though. You can see from the weekly chart just how choppy the last 9 weeks have been.
Daily: Trend up/ranging. Price has traded below the key 82.59 level for most of the week. The 82.59 level represents the 61.8% fib retrace level from the last major swing high back in mid 2010 and is still proving to be very significant. Price rallied up to near this level following the positive NFP result but fell back away after the poor US PMI data to give a bearish candle for Friday.

Daily Ichimoku Cloud chart: Price has traded in the Cloud for most of the week. This suggests more choppiness.
4hr: Trend choppy/down. Price trended down to start the week but rallied on Thursday after some positive US data. The bearish ascending wedge pattern and ‘Head and Shoulders’ patterns from last week did evolve and play out in text book fashion! Price chopped around under the monthly pivot to end the week with some spikes from NFP.
4hr Ichimoku Cloud chart: Price has traded below the 4hr for most of the week. It finished the week trading below the Cloud.  This is divergent from the daily chart and suggests choppiness.
Monthly: Trend down overall but 7 of the last 9 months were bullish. The April monthly candle closed as a bullish engulfing candle. The very new monthly candle is printing a bearish ‘spinning top’.
Weekly: Trend up. Price had earlier failed to move above the monthly 200 EMA. This had been major resistance so it was no surprise that price had paused under this level. Price action had been quite parabolic for ‘risk on’ until recently and subsequently pulled back to the mean of the support  trend line;  something that is not out of order as part of any continued longer term bullish price action. This pullback has actually played out in text-book fashion! The weekly candle closed as a small, but bullish, candle. 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 level but under the key 108.5 S/R level. The significance of this 108.5 level can be seen if you cast your eyes across the weekly chart.
Daily: Trend ranging. Price has chopped around this week, again, between the 107.5 and 108.5 levels. Price finished the week with a bullish candle near the midpoint of this trading channel.
Daily Ichimoku Cloud chart: Price has chopped around either just above or in the top edge of the Cloud and just below the 108.5 level all week. Price really needs to break above the 108.5 level to motivate any real ‘risk on’ momentum for currencies. Price struggled to hold above the Cloud as the week progressed but managed to close the week sitting just above it and, you guessed it, just below the 108.5 level.
4 hr: Trend ranging. Price has chopped around between the 107.5 and 108.5 levels for the last 4 weeks. I have shaded this channel to make it easier to see. Price finished the week near the middle of this channel.
4hr Ichimoku Cloud chart: Price has chopped around in, and just under, the Cloud all week. Price finished the week in the Cloud.  This is divergent from the daily chart and suggests further choppiness.
Thoughts: NB: Not much has changed over recent weeks so the write up is fairly similar again.
Choppy markets + Ichimoku: The Ichimoku charts are still divergent and this suggests some further choppiness ahead. I do suspect this extended period of choppiness is connected to the current market top action that is being seen across many global stock markets. Stocks and currencies seem to be at a major junction and are experiencing choppy action ahead of the next major new momentum move. To me, this feels like the thunder building before a major storm. I just don’t know whether the storm will be ‘risk on’ or ‘risk off’. So even though I have no idea what that directional move will be, when it appears, I will trade it. Stock moves seem to be suggesting more ‘risk on’ might be ahead.
The consistent pattern with Ichimoku divergence continues though. That is; choppy 4hr chart trading with better trend trades found off 30 min charts during the US session. I would expect that pattern to continue until such time as the charts do align again. This has certainly been the case during this last week.
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’. All four index charts are trading very close to, or within, their respective Clouds. Thus, momentum could swing either way, rather quickly and easily, form this point. I am keeping an open mind here.
The EURX as ‘risk’ barometer: The EURX has been a proxy measure for the mood for ‘risk appetite’ over recent months. The EURX has now pulled back down and tested the support of the major monthly trend line. Price has now bounced off this major support level and rallied for 4 of the last 5 weeks. This is no guarantee that this trend will continue though. The next major hurdle for the EURX is the 108.5 level. This level is proving to be a significant challenge though and has managed to contain price for much of the last three weeks. However, any break and close above this 108.5 level would suggest that there might be some follow through with this bullish reversal and a swing back towards ‘risk on’. This 108.5 remains the key level to watch in the coming weeks.
USDX: The USD rallied on Friday, along with stocks, after the US positive jobs data. This rally stalled though after some weaker than expected US PMI data. It seems that we could be heading into a new period, or paradigm era, where the USD might be seen as the new ‘growth’ or ‘risk on’ currency. This is contrary to the previous dominant paradigm of the Euro, AUD and CAD etc carrying this mantle; a phenomenon I have noted and discussed before. I’m not sure how long a USD rally can tag with a stock rally though. I would have thought that one, eventually, has to hurt the other. I’m keeping an open mind though and will be on the lookout for further clues as to any shift.
Note: 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.