FX Indices Review for 25/02/13

Monthly: Ranging upwards. The February candle is still printing a large bullish engulfing candle. January’s ‘inverted hammer’ candle was right on with pointing to possible bullish reversal!

Weekly: Trend up overall. The 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 USDX has retraced back up towards the 81.70 level. This has added some balance and symmetry to the left hand side of this pattern. The 81.70 level will be a key level to watch this coming week. Failure to break above this level and, then, a subsequent fall in price would reinforce the bearish H&S pattern. A break, close and hold above this level though would suggest continued bullish momentum and undermine the developing H&S pattern. The weekly candle closed as a large bullish candle.

Daily: Ranging to upwards. Price broke during the week above the 50% Fib retrace level of 80.70 from the last major swing. It now seems to be forming a possible ‘double top’.

Daily Ichimoku Cloud chart: Price has held up above the daily Cloud and broken away quite strongly.

4hr: Up. Price has trended up for most of this week.

4hr Ichimoku Cloud chart: Price has traded above the Cloud all week. This is 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 am not surprised at all to see price pull back a bit. Price action until now has been quite parabolic for ‘risk on’ and the current pause, with a possibility with reversion to the mean or the trend line, is not be out of order as part of any possible continued longer term bullish price action.

Weekly: Trend up. The weekly candle closed down for the week but as an ‘inside candle’. This could reflect either consolidation before further up move or indecision and possible reversal.

Daily: Trend ranging upwards. Price seems to have been consolidating under the monthly 200 EMA. It is looking more ‘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 down. Price has continued to chop downwards in a flag pattern 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 three weeks. The monthly 55 EMA seems to be forming the bottom support trend line for this ‘Flag’ pattern. Price broke down through the support level of 108.5 again during the week and closed the week, a bit lower, sitting just above the monthly 55 EMA.

4hr Ichimoku Cloud chart: Price chopped around under, within, above and then below the Cloud this week. Price finished the week trading under 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 three weeks now making for choppy trading and fewer TS signals. 
The Cloud charts: Both USDX Cloud charts, the daily and 4hr, are currently aligned to support ‘risk off’ momentum. 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. I’ll also be watching the USDX charts to see if they stay aligned for ‘risk off’. 
EURX Daily Chart: The main signal that is contrary to 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 before making another attempt at the weekly 200 EMA just above current levels. So, I will be watching the small bear trend line I have here to see if this might be breached. 
I will look for ‘risk on’ trades if:
  • the USDX turns bearish AND if
  • the EURX turns bullish and breaks back above the triangle bear trend line on the daily chart.

I will look for ‘risk off’ trades if:
  • the USDX turns bullish and breaks & holds above the 81.70 level AND if
  • the EURX turns bearish and holds below the weekly 200 EMA 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.