Overall: The USDX closed above key support (82.59) and the EURX closed below key resistance (108.5). That may seem conclusive to some as proof of ‘risk off’ trading and it may well prove to be BUT, the EURX still ‘looks’ a bit bullish, to me at least. I’ll be watching these key levels into next week, as well as watching out for new Ichimoku Cloud alignment.
NB: This analysis is posted a bit earlier than usual as I am heading off for the w/e. The charts had not fully closed off at the time of image capture so the final candle print may differ a little but I think the overall sentiment should remain.
Monthly: Trend ranging upwards. The monthly candle is currently printing a bearish ‘inside’ candle. The monthly 200 EMA is above current price, at around the 84 level, and might help to keep a lid on this!
Weekly: Trend up overall. The weekly support trend line is still supporting price. The weekly candle closed as a bullish engulfing candle. The current chart still looks to be forming a bearish ‘double top’. You can see from the weekly chart just how choppy the last 7 weeks now have been.
Daily: Trend up/ranging. Price was trading within a bearish descending triangle but the Friday candle rallied and has now closed out and up from this pattern. Also, it has closed above the key 82.59 level. 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.
Daily Ichimoku Cloud chart: Price got down very close to the Cloud mid week and subsequently bounced right back up to the key 61.8% Fib retrace level from the last swing high. It is still trading above the daily Cloud.
4hr: Trend down overall/choppy and up this week. Price chopped around this week. Price rallied back up to the 82.59 level mid week, hung around that area and then popped up through it on Friday.
4hr Ichimoku Cloud chart: Price opened the week below the 4hr Cloud but moved back up to finish the week within the Cloud and up near the top edge of the Cloud. So, although close to popping above the Cloud, this is divergent from the daily chart and suggests further choppy action.
Monthly: Trend down overall but 6 of the last 8 months were bullish. The current print of the monthly candle is a still a bullish engulfing candle.
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! Price has continued to rally this week. Thus, the ‘retracement to the mean’ period might have come to an end. The weekly candle closed as a bullish candle, albeit not as big as the USDX weekly 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 currently 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/downwards. Price has chopped around this week after last week breaking out of the Bull flag pattern. It is still sitting under another S/R level in the 108.5 level.
Daily Ichimoku Cloud chart: Price has chopped in and out of the top edge of the Cloud this week. Price has closed up and out of the daily Cloud.
4 hr: Trend ranging. Price has chopped up and down this week under the key 108.5 level.
4hr Ichimoku Cloud chart: Price has chopped around above and in the top edge of the Cloud all week. Price finished the week above the Cloud. This is in alignment with the daily chart and supportive of ‘risk on’.
Choppy markets + Ichimoku: The Ichimoku charts are still divergent and this suggests some that the choppiness will continue. 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.
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.
I am still 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’.
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 the last two weeks. This is no guarantee that this trend will continue though. The next major hurdle for the EURX is the 108.5 level. However, a 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 will be a key level to watch in the coming week.
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.