FX Indices Review for 18/02/13

Monthly: Ranging upwards. The new February candle is still printing a large bullish engulfing candle.
Weekly: Trend up overall. The new weekly support trend line is still supporting price. 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 is 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 small but bullish candle. 
Daily: Ranging. Price has chopped around under the 50% Fib retrace level from the last major swing high (80.70 level) since last December. Basically, since last September, it has been trading between the 50% and 38.2% Fib retrace levels from the last major swing high.
Daily Ichimoku Cloud chart: Price traded within the Cloud for most of the week but emerged to finish the week up and out of the Cloud. This is quite significant, especially if it can hold. Price has actually been under, or in, the Cloud since last August. It did break through briefly in mid November 2012. It will be interesting to see whether this current break out and up from the Cloud will hold. I have circled the chart to show the 2 places where price has broken up through the daily Cloud.
4hr: Ranging. Price has chopped around above the weekly 200 EMA but under the 80.70 level all week.
4hr Ichimoku Cloud chart: Price has traded above the Cloud all week. This is now in alignment with the daily chart and supportive of ‘risk off’ momentum.
Monthly: Trend down overall but the last 6 months were bullish candles.  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. I would not be surprised at all to see price pull back to re-test this support trend line. Price action, until now, has been quite parabolic for ‘risk on’ and a pause, along with a 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.
Weekly: Trend up. Price closed the week higher than it opened. The weekly candle closed as a sort of ‘inverted hammer’ pattern. The body of the candle is probably a bit too large to be a true ‘inverted hammer’ though. These candles suggest possible reversal.
Daily: Trend ranging upwards. Price seems to have been consolidating under the monthly 200 EMA. It could almost be construed as looking ‘bull flag’ like. There is a fair amount of support under current price in the form of the weekly and 4hr 200 EMA and the monthly pivot.
Daily Ichimoku Cloud chart: Price is still trading above the Daily Cloud but has been consolidating in a narrow range for the last 2 weeks.
4 hr: Trend ranging to down. Price continued to chop around this week as it traded under the huge resistance level of the monthly 200 EMA. It has chopped around under a downward trend line for the last two weeks. Price broke down through the support level of 108.5 during the week but closed the week sitting just above this level and right on 108.55!
4hr Ichimoku Cloud chart: Price chopped around either within or just under the Cloud all week. Price is trading within the bottom edge of the Cloud on the 4hr chart. This is divergent from the daily chart so price action may be choppy.
Thoughts: Ichimoku divergence has been with us for the last two weeks making for choppy trading and few TS signals. The signals that were received have been inconsistent as well. This pause in momentum is still not surprising given the significant barrier in front of the Euro and, also, given the fantastic trend run of recent weeks where many hundreds of pips were on offer.  Markets do tend to take a breather now and then. 
The question remains though: will this ‘risk on’ momentum pick up steam again OR will there be more of a pullback and even a reversal? Many commentators have their distinct opinions about this. I don’t claim to have any trading crystal ball or any preconceived idea BUT I will keep watching the charts and, when a new trend does emerge, I will tag along and trade it. Until such a time comes though I will be watching 2 key areas when trying to assess for any new trend:
  1. The Cloud charts: Both USDX Cloud charts, the daily and 4hr, are currently aligned to support ‘risk off’ momentum but I will need to see if this pattern holds into next week and after the G20 meetings. 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 chart. I will be looking to see if that alignment changes at all though. I’ll also be watching the USDX charts to see if they both stay aligned for ‘risk off’. 
  2. EURX Daily Chart: The main signal that is contrary to a possible reversal to ‘risk off’ is the look of the EURX on the daily chart. I said above that it looks a bit ‘bull flag’ like, as if it is just pausing and gathering strength before making another attempt at the weekly 200 EMA that is just above current price. So, I will be watching the small bear trend line I have here to see if this might be breached in any trend line break action. 

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 and the bear trend line on the daily chart.

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.