Polarity shift? The Ichimoku charts provide an interesting view of the USD and Euro index charts this week. Both indices are aligned towards a more ‘risk on’ sentiment on the 4hr, daily and weekly time frames and both have price hovering close to the Cloud on their monthly charts. This has me wondering: Is a significant shift in polarity building that will see the USD continue to slide? I’m keeping an eye on the Ichimoku charts of both indices to see whether such a shift indeed evolves or, whether, this juncture triggers a sentiment reversal.
Monthly: Trend ranging / upwards. The September candle closed as a large bearish engulfing candle. The monthly 200 EMA and the 84 area continue to be effective resistance. The very new October candle is currently printing a bullish reversal style ‘hammer’ candle.
trading at the top edge of the Cloud:
Weekly: Trend up overall. Price closed the week again below the major support trend line and, also importantly, below the weekly 200 EMA. The weekly candle also closed as a bullish reversal style ‘hammer’ candle. It is worth noting that price had not previously closed below the weekly 200 EMA since January this year.
trading below the Cloud:
Daily: Trend choppy/down. Price traded lower each day this week except for Friday.
Daily Ichimoku Cloud chart: Price traded below the Cloud all week. The strong bearish Tenkan/Kijun cross signal of a few weeks ago was a very accurate predictor of price action!
4hr: Trend choppy/down. Price trended down for most of the week, closing below the weekly 200 EMA and the weekly pivot level.
4hr Ichimoku Cloud chart: Price traded below the Cloud all week. This is in alignment with the daily chart and supports short USD or ‘risk on’. Price is edging closer towards thin Cloud though and that would probably not offer much resistance.
Monthly: Trend down overall. The September candle closed as a small bullish candle. The very new October candle is currently also printing a small bullish candle.
: trading below the Cloud:
Weekly: Trend up, overall. Price had failed to move above the monthly 200 EMA after several previous attempts but seems to trying to have another go. This level has been major resistance to price movement. The weekly candle closed as a bullish candle just below the monthly 200 EMA.
: trading above the Cloud:
Daily: Trend up overall. Price chopped upwards this week as it continued bouncing along just under the key resistance of the monthly 200 EMA. You can see from the daily chart that price is still printing what looks like a possible bearish ‘triple top’ pattern as this has yet to be voided by any higher close. There is also a competing bullish ‘inverted Head & Shoulder’ pattern printing here though. The neck line of this pattern looks to be at around 110 which is just below the monthly 200 EMA level.
Daily Ichimoku Cloud chart: Price fell into the Cloud on Monday and traded there until Wednesday. The bullish Tenkan/Kijun cross has held up this week despite this fall. This bullish cross occurred within the Kumo though so is considered a ‘neutral cross’. Price closed the week back trading above the Cloud.
4 hr: Trend ranging/choppy: Price continued to chop sideways for the first half of this week in a bullish ‘descending wedge’ pattern and under the major resistance of the monthly 200 EMA. Price broke out and up from this bullish wedge pattern on Thursday though and closed the week out of this wedge.
4hr Ichimoku Cloud chart: Price opened the week under the Cloud but drifted in and out until Wednesday. Price then moved up through the Cloud and finished the week trading above the Cloud. This is in alignment with the daily chart and supports long EUR or ‘risk on’.
USDX: The USDX again closed lower for the week. Price is still trading under the weekly support trend line and the weekly 200 EMA. The weekly candle closed with some bullish reversal look to it though and these weekly candles have been quite accurate lately.
The USDX is trading under the Ichimoku Cloud on the 4hr, daily and weekly chart time frame. It is trading at the top edge of thin Cloud on the Monthly chart. A fall through this monthly Cloud would spell a major shift in polarity for the USD.
EURX: the EURX traded higher this week and broke out and up from a bullish wedge pattern.The EURX is trading above the Ichimoku Cloud on the 4hr, daily and weekly chart time frame. It is trading just under the Cloud on the monthly chart. A break up through this monthly Cloud would spell a major shift in polarity for the Euro.
Final Thoughts: The USD has remained weak due to uncertainty surrounding the US Government shutdown. This shutdown has also added to speculation that US QE tapering will not be starting anytime soon and this has also put pressure on the USD. The Euro has again risen more due to this USD weakness rather than due to any Euro-based economic development.
The Ichimoku charts for the USDX and EURX are once again aligned in support of ‘risk on’. I will be watching to see if this alignment holds and looking for new TS signals in line with this alignment. I will also be keeping an eye on the monthly Ichimoku charts of the indices to see how these shape up over time.
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 or Middle East 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.