FX Indices Review for 11/02/13

USDX

Monthly: Ranging upwards. Well, I had mentioned last week that the January inverted hammer candle might point to a bullish reversal and… that is exactly what we’ve got so far! The new February candle is currently printing a large bullish engulfing candle. 
Weekly: Trend up overall. The weekly support trend line was broken but price has closed back up above this level again now. 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 for a bit longer before possibly breaking down. It seems entirely possible that the USDX could retrace back up to the 81.70 level. This would actually add some balance and symmetry to the left hand side of this pattern. The weekly candle closed as a large bullish engulfing candle.
Daily: Ranging. Price traded up all week and parked itself on top of the daily 200 EMA for the weekend.
Daily Ichimoku Cloud chart: Price is trading at the upper edge of the daily Cloud.
4hr: Ranging. Price opened the week bouncing up off the support of the weekly chart’s H&S neckline. Price rallied for most of the week to finish near the daily 200 EMA.
4hr Ichimoku Cloud chart: Price is trading above the 4hr Cloud. This is a bit divergent from the daily chart so price action may be choppy.
EURX
Monthly: Trend down overall but the last 6 months were bullish candles.  Price struggled once it reached up to the huge resistance level of the monthly 200 EMA level. I had suggested as much last week. The January candle had closed as very large bullish candle so, it is not surprising at all to see some retracement from that fact alone. Then, add in some healthy monthly 200 EMA resistance and price was probably always going to pull back somewhat, for this last week at least. Price is still trading up and out from the 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 and I have extrapolated this out to show the support level. I would not be surprised at all to see price pull back to re-test this support trend line.
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. Bullish momentum stalled this week as price bumped up against the monthly 200 EMA though. The weekly candle closed as a large bearish engulfing pattern.
Daily: Trend ranging upwards. Price has been bullish for much of the last 3 months. The resistance of the monthly 200 EMA has given price some grief though. That, and some rather bearish comments from Super Mario during the week.
Daily Ichimoku Cloud chart: Price is still trading above the Daily Cloud but pulling back a bit.
4 hr: Trend up to ranging. Price started to range trade this week as it sat under the huge resistance level of the monthly 200 EMA. Price has now broken down through the support level of 108.5 though. There is more support below current price in the form of the monthly pivot and, then, the weekly and 4hr 200 EMA. The monthly support trend line is much further down the chart.
4hr Ichimoku Cloud chart: Price is trading below the Cloud on the 4hr chart. This is divergent from the daily chart so price action may be choppy.
Thoughts: Ichimoku divergence crept in last week and made for choppy trading with few TS signals being delivered. This is a good thing as my TS system kept me out of choppy, indecisive and erratic market action. This pause in momentum was not surprising after the fantastic trend run of the last couple of weeks where many hundreds of pips were on offer.  Trends do not last forever.
I had warned last week about possible HUGE resistance zones looming on the horizon for both the EURX and USDX, and the impact this might have on momentum, and they did indeed evolve. The EURX stalled under the monthly 200 EMA. The USDX bounced up off the neckline of the weekly chart ‘Head and Shoulder’ pattern. I had stated here last week that “Both of these levels could help to stall momentum or, even, possibly reverse the current trend”.  Well, that is what has happened. The ‘risk on’ momentum that had been in place for many weeks has been somewhat slowed in its tracks.  The Index charts are now showing significant Ichimoku divergence so I will be wary with any 4hr chart trend signals. I will be on the lookout to see if there is even a switch to ‘risk off’ alignment across the Index Ichimoku charts. I will also be on the lookout to see if there are better trading opportunities from the 30 min charts during the US trading session.
I will look for ‘risk on’ trades if:
  • the USDX turns bearish AND if
  • the EURX turns bullish and breaks back above the 108.5 level.

I will look for ‘risk off’ trades if:
  • the USDX turns bullish AND if
  • the EURX turns bearish and holds 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.