FX Indices Review for 20/05/13

USDX

Monthly: Trend ranging upwards. Price has now punched up through the monthly 200 EMA and the 84 S/R level. The monthly candle is currently printing a large bullish candle.
Weekly: Trend up overall. The weekly support trend line is still supporting price. The weekly candle closed as a large bullish candle. The possible bearish ‘double top’ seems to have been avoided now given that price has closed above the 84 S/R level.
Daily: Trend ranging/up. Price has punched up above the 84 S/R level during a very bullish week for the USD.

Daily Ichimoku Cloud chart: Price traded above the Cloud all week.
4hr: Trend choppy/up. Price chopped sideways to start the week and then moved up to form into a bull flag pattern. Price broke out and up from this flag pattern on Friday to close above the 84 level.
4hr Ichimoku Cloud chart: Price traded above the 4hr Cloud all week. This is aligned with the daily chart and suggests a continued bullish bias for the USD.
EURX
Monthly: Trend down overall but 7 of the last 9 months were bullish. The current monthly candle is printing a small Doji candle, albeit still green and bullish at this stage.
Weekly:Trend up, overall. Price failed to move above the monthly 200 EMA back in January. This level had been major resistance so it was no surprise that price had paused here. Price action had been quite parabolic for ‘risk on’ and subsequently pulled back to the mean of the support trend line. Price bounced off this major support level and has held up for the last 7 weeks. The weekly candle closed as a bearish ‘spinning top’ candle that reflects indecision. 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.  Price has struggled to break and hold above the 108.5 level for the last 6 weeks. The significance of this 108.5 level can be seen if you cast your eyes across the weekly chart. The failure to break up through this level, after many recent attempts, might now be proving to be a bearish signal though.
Daily: Trend ranging. Price has chopped around this week again between the 107.5 and 108.5 levels. This area is shaded in pink on the charts. This is the 6th week of such choppy, range bound action. Price really needs to break out of this narrow zone so as to enable any longer term trends to develop. Friday’s candle closed as a bullish engulfing candle within this pink trading zone but still under the 108.5 level.
Daily Ichimoku Cloud chart: Price chopped sideways, wedged between the Cloud and the 108.5 level, all week.
4 hr: Trend ranging. Price chopped downwards within the 107.5 – 108.5 channel all week. Price finished the week in the middle of this channel.
4hr Ichimoku Cloud chart: Price started the week above the Cloud, moved down below the Cloud midweek and, then, retraced to finish the week back within the Cloud.  This is divergent from the daily chart and suggests further choppy action.

Thoughts:
Choppy markets + Ichimoku: The Ichimoku charts are still divergent and this suggests continued choppiness. Such conditions are better suited to shorter time frame trading during the US session than to longer term (eg 4 hr) chart trading.

The EURX: The EURX has held up surprisingly well again this week given the continued ascent of the USD. I am amazed to see that it is still sitting just under the 108.5 resistance level. This level is proving to be a significant challenge though and has managed to contain price for much of the last 6 weeks. 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 a more typical form of ‘risk on’. A move down below the Daily Ichimoku Cloud would be a very bearish signal though. I continue to watch these two areas on the EURX: the 108.5 level above current price AND the support zone represented by the Daily Cloud below current price. These are the two key levels to watch on the EURX.

USDX: The USD index usually trades inversely to that of other typical ‘risk’ instruments such as stocks, the Euro, AUD and CAD etc. This index has continued to rally along with stocks this week. I continue to watch stocks and currencies to see if we might be heading into a new period, or paradigm era, where the USD might be seen as the new ‘growth’ or ‘risk on’ currency. I continue to ponder just how long a USD rally can tag along with a stock rally though. I would have thought that one would eventually hurt the other. I’m keeping an open mind though and will be on the lookout for further clues as to any shift in sentiment.


Final word:
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’.
I am also waiting to see whether:
  • Stocks join the ‘risk off’ move currently seen with currencies OR
  • Currencies join the ‘risk on’ moves currently seen with stocks OR
  • Stocks and currencies continue to trade with divergence.
I have no idea what will evolve BUT I will be watching for clues and, once a clear new trend emerges, I’ll try to grab some of it.
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 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.