FX Indices Review for 25/03/13

Monthly: Ranging upwards. The current March candle is bullish but has a bit of a bearish, ‘shooting star’ look to it at the moment.

Weekly: Trend up overall. Price gapped up at the start of the week after the w/e Cyprus banking news. We have had a bearish close for the weekly candle though and this is the second bearish candle after 5 bullish weeks. The larger weekly support trend line is still supporting price though. The H&S pattern on the weekly chart might still come back to life if price can hold below 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. The ‘neck line’ of this pattern is at 78.81 which is equivalent to the 38.2% fib retrace level from this last major swing high. The weekly candle closed as a bearish candle, below the 82.59 level and below the new daily bull trend line.

Daily: Up. Price rallied for all of February but had chopped sideways and up for most of March. Price had been trading above the daily chart’s new bull support trend line but broke down through this on Friday.
Daily Ichimoku Cloud chart: Price is still trading above the daily Cloud but has closed below the Tenkan-sen line.
4hr: Up. Price gapped up above the 82.59 level at market open on Monday and spent most of the week skulking along, just above, this S/R level. Price broke down through the 82.59 level and daily support trend line during Friday’s trade though.

4hr Ichimoku Cloud chart: Price finished last week below the Cloud but popped back above on market open. Price traded just above the Cloud all week until Friday when it fell back below the 4hr Cloud.  The current alignment is divergent from the daily chart and suggests further choppiness.

Monthly: Trend down overall but 6 of the last 8 months were bullish.  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 as part of the monthly chart triangle pattern. The current monthly candle for March has turned bearish now but is printing a ‘long legged Doji’ candle. These patterns suggest indecision.
Weekly: Trend up but has stalled. Price has failed to move above the monthly 200 EMA. This has been major resistance so it is no surprise that price has paused under this level. Price action had been quite parabolic for ‘risk on’ until recently and the current pause, with the possibility of further reversion to the mean or the trend line, is not out of order as part of any continued longer term bullish price action for. The weekly candle closed as a bullish candle. The current weekly chart print could still be considered as a ‘bull flag’ pattern though.

Daily: Trend ranging upwards. Price seems to have been consolidating under the monthly 200 EMA for most of February, and now into March as well, in a descending flag/wedge pattern. These are bullish patterns and give this index a ‘bull flag’ appearance.  Price gapped down at the start of the week to trade below the weekly 200 EMA. Price spent most of this week bouncing off the bottom trend line of the potential flag pattern.

Daily Ichimoku Cloud chart: Price fell down into the bottom region of the Daily Cloud on Monday and spent the rest of the week trading up and down in this bottom part of the Cloud. 
4 hr: Trend ranging down. Price has bounced between the weekly 200 EMA and the bottom trend line of the flag/wedge pattern all week.

4hr Ichimoku Cloud chart: Price gapped below the Cloud on Monday and spent the rest of the week trading below the Cloud. This is divergent from the daily chart and suggests further choppiness.
Technical trading was most difficult this week in the face of so much major weekend news that impacted the markets. This news resulted in major gaps on some pairs at market open. This challenge is likely to continue, for the short term at least, until the most recent problems surrounding Cyprus bank funding is resolved. Discussions about the EU bank bailout are continuing over the w/e. It is difficult to predict how the markets will react to this news as any resolution to this problem does not necessarily address broader EU banking problems.
Ichimoku divergence has been with us for the whole of February and now into March making for continued choppy 4hr chart trading and with few TS signals. This choppy 7 week period has allowed the parabolic rise of ‘risk’ and the Euro to pause and, even, to draw back closer to the mean, or weekly support trend line. This can be seen on the weekly EURX chart. The ‘bull flag’ like pattern on the Euro chart will continue to guide me about future market direction. The EURX daily chart still shows price embedded in the Daily Cloud. I won’t be trading until price emerges from this Cloud.
Whilst this divergence is most frustrating, there is a clear and repeatable pattern emerging. This divergence makes 4hr chart FX trading quite difficult BUT it does allow for good Option and stock trading and, also, for opportunities to trade off shorter time frame charts during the US session. Friday night was another example of this as the 30 min charts on the S&P500 and E/U show:



The markets do not always offer optimum conditions for 4hr FX trend trading and you need to know when the conditions are best suited to this type of trading. February and March 2013 have been a perfect example of this lack of suitability for 4hr FX trend trading. Stock and Option trading, and shorter time frame 30 min chart FX trading, are a good complement to 4hr Forex trading during these choppy time periods though.
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.