US$: still lower Highs & lower Lows.

There are some conflicting technical signals on the FX indices this week. The US$ index closed higher for the week but is still printing lower Lows and lower Highs whereas the EURX closed lower for the week but is printing higher Highs and higher Lows. This is just the kind of mess you’d expect though whilst both indices remain mired in their respective weekly Ichimoku Clouds.

USDX

Monthly: The April candle is now printing a bullish coloured indecision ‘Spinning Top/Doji’ candle but is still well below the key 100 level. The monthly chart below shows a Bull Flag forming up but, given the 100 level is proving to be some resistance, there is also a possible ‘Double Top’ developing as well. The Bull Flag pattern, if it evolves, might target the 120 region and has been calculated as follows: the height of the Flag pole of the Bull Flag is about 20 units (100 – 80 = 20). Extrapolating up 20 from the top of the Bull Flag, as per Bull Flag breakout technical theory, puts price up in the vicinity of the 120 area. This happens to be a key region for two reasons: Firstly, this is the 50% fib of the 1985-2008 major swing low move and, secondly, this is a previous S/R region with price action reacting here for over a two year period from mid-2000 to mid-2002. Thus, any break and hold back above 100 might be expected to target this region.

DXYmonthly

Monthly Ichimoku: The April candle is trading well above the Cloud.

USDXmonthlyCloud

Weekly: The weekly candle closed as a bullish engulfing candle. Price action remains range-bound between 100 and 92.50 and has been within this channel for over 15 months. Any break and hold below 92.50 would have me looking for a potential move down to test the congested area containing the weekly 200 EMA, weekly 61.8% fib and previously broken trend line region (highlighted on the chart below). Note how any move down to this broken trend line region would be a move of similar order magnitude to the height of the current trading channel.

USDXweekly

Weekly Ichimoku: The weekly candle closed within the weekly Cloud.

USDXweeklyCloud

Daily:  Monday and Friday were bearish days but, despite the bullish weekly candle close, the daily chart still shows the index printing lower Highs and lower Lows which remains a bearish pattern for the current time. As well, price action is still conforming to a descending trading channel. A higher High needs to be seen here before US$ Bulls can get too excited.

USDXdaily

Daily Ichimoku Cloud chart: Price traded below the daily Cloud all week.

USDXdailyCloud

4hr: Price snaked higher last week.

USDX4

4hr Ichimoku Cloud chart: Price moved up into the 4hr Cloud last week and finished the week just above the Cloud. This chart is now divergent from the daily chart and suggests choppiness.

USDX4hrCloud

EURX

Monthly: The April candle is now printing a bearish coloured ‘Inside’ candle but is holding well above the 94 level giving the chart a ‘Double Bottom’ appearance.

EURXmonthly

Monthly Ichimoku: The April candle is trading below the Cloud.

EURXmonthlyCloud

Weekly: The weekly candle closed as a bearish candle but is still within the weekly Flag. There have been two conflicting weekly-based technical patterns competing over many months; a basing-style bullish ‘Double Bottom’ and a ‘Bear Flag’ but there still isn’t a clear winner just yet. Any bullish continuation might eventually target the 50% and 61.8% fib levels of this two-year swing low move.

EURXweekly

Weekly Ichimoku: Price is trading in the mid region of the weekly Cloud.

EURXweeklyCloud

Daily: Price action was bearish every day last week BUT there are still higher Highs and higher Lows being printed for the time being. Monday to Wednesday represented the biggest of the bearish moves whilst Thursday and Friday resulted in bearish coloured ‘Spinning Top’-style candles.

EURXdaily

Daily Ichimoku Cloud chart: Price traded lower yet still above the daily Cloud all of last week.

EURXdailyCloud

4 hr: Price chopped lower last week but found support towards the end of the week near the monthly pivot.

EURX4

4 hr Ichimoku Cloud chart: Price traded down from the 4hr Cloud last week. This chart is still divergent from the daily chart and suggests choppiness.

EURX4hrCloud

General:

  • Both indices continue to hold within long-term Flag patterns that have persisted for over 15 months.
  • Both FX Indices remained mired in the chop of the weekly Ichimoku Cloud.
  • The USDX and EURX are both divergent on their Ichimoku 4hr & daily charts suggesting continued choppiness.

USDX: The US$ closed higher for the week despite poor data from US Retail Sales, CPI and Consumer Sentiment with Weekly Unemployment Claims being the only bright spot on the economic front. Some are suggesting that this divergence means a base is forming for the US index, however, whether this hold above major 92.50 support for now represents the start of another bounce higher or is just the last hoorah before falling through the 92.50 floor remains to be seen. The daily chart still shows a bearish cycle of lower Highs and lower Lows despite this bullish weekly close and so US$ Bulls should not get too excited just yet. Next week brings an ECB Interest Rate update and a lot of European PMI data and this might help define the next path for the US$. The weekend Doha Oil Summit will also impact here but as to how remains to be seen.

I still consider the US$ to be in no-man’s land whilst it trades above 92.50 and below 100. I am waiting for a decisive breakout from this region to signal the next major directional move on the index as this choppy and range-bound price action has gone on for over twelve months. The levels to keep watching on the USDX are:

  • The weekly chart Flag trend lines.
  • The psychological 100 level above current price. This is the top of the trading range.
  • The 92.50 level below current price. This is the bottom of the trading range.

EURX:  The EURX also closed lower for the week as it seems to have remembered that there is clear policy divergence with the Eurozone trading within a monetary easing cycle and the US trying to emerge from one. However, there is still a pattern of higher Highs and higher Lows that needs to be broken to confirm any bearish reversal.

Aside from fundamental issues impacting the two major currency indices I continue to see both trading within technical-based Flag patterns and their weekly Cloud and, therefore, I continue to wait for any breakout from these two resistance zones.  There is a lot of European data next week to impact here with an ECB Interest Rate update and lots of PMI data and the w/e Doha Oil Summit will probably impact here too.

The levels to watch on the EURX continue to be:

  • The weekly chart Flag trend lines.
  • The 103.5 level: The weekly chart reveals that a 50% fib retracement of the recent lengthy bear move is back up near the 103.50 level. Any bullish Flag breakout might see the index target this region and the weekly 200 EMA is near this fib for added confluence.
  • The 105.5 level: this is near the 61.8% fib.
  • The 96 level:This is a major support level for the EURX and has been a previous monthly chart ‘Double Bottom’ region.
  • The 94 level: This is the more recent ‘Double Bottom’ level as seen on the weekly chart.

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 terrorism-related, Eurozone or Middle East events and/or news announcements, continue to be unpredictable triggers for price movement on the indices.  These events always have the potential to undermine any technical analysis.