The US$ has been in focus since the US Presidential Election but it might be usurped in the coming week given the looming Italian Referendum. Both FX indices have printed ‘indecision’ style weekly candles so take that as a cue that some caution needed!
Updates: I am busy over the next few weeks and weekends in the lead up to and including the Christmas week so updates may be less frequent and more brief during this period.
Monthly: With just three trading days to go, the November candle is printing a large bullish candle and is above the key 100 level. This longer-term monthly chart still shows a Bull Flag forming though and, if it evolves, the target would be the 120 region. This 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 monthly candle break and hold back above 100 might be expected to target this region.
Monthly Ichimoku: The November candle is trading well above the monthly Cloud.
Weekly: The weekly candle closed as a bullish coloured ‘Spinning Top’ candle suggesting some indecision. However, on the bullish side, the weekly candle closed well above the 100 level and marks the first case of two consecutive weekly candles to close above the 100 level since April 2003.
Weekly Ichimoku: The weekly candle is well above the weekly Cloud.
Daily: There were three bearish days and two bullish last week. Any pullback though would have me look to the 97 region as this is down near the 61.8% Fib of the recent swing high and also near the daily 200 EMA.
Daily Ichimoku Cloud chart: Price traded above the daily Cloud last week.
4hr: Price chopped higher last week.
4hr Ichimoku Cloud chart: Price traded above the 4hr Cloud last week. The US$ remains aligned on the 4hr and daily chart time frames suggesting LONG US$ and has been for most of the last three weeks.
Monthly: The November candle is forming a bearish, essentially ‘Engulfing’, candle but remains well above the 94 level supporting the monthly chart’s ‘Double Bottom’ pattern.
Monthly Ichimoku: The November candle is still trading below the Cloud.
Weekly: The weekly candle closed as a bullish coloured ‘Spinning Top’ candle here too also suggesting some ‘indecision’ and the index remains trading within the weekly chart’s long-term trading channel. There have been two conflicting weekly-based technical patterns competing for almost two years now; a basing-style bullish ‘Double Bottom’ and a trading channel with a ‘Bear Flag’ look to it but there still isn’t a clear winner just yet. Any bullish shift might eventually target the 50% and 61.8% fib levels of this two-year swing low move.
Weekly Ichimoku: Price action continues to hold above thin weekly Cloud although this support base continues to broaden.
Daily: Three of the last five days were bullish but note the long shadows on recent candles. Despite the political landscape ahead for the Eurozone there is clearly some hesitation with price action on this index. Any pullback though would have me look up to the 100 region as this is previous strong S/R.
Daily Ichimoku Cloud chart: Price traded below the daily Cloud last week.
4 hr: Price chopped sideways to slightly higher last week.
4 hr Ichimoku Cloud chart: Price traded below the 4hr Cloud last week but finished the week sitting right back up under this resistance zone. The EUR$ remains aligned on the 4hr and daily charts for SHORT EUR$ and has been for most of the last three weeks.
- The US$ is attempting a bullish breakout from a long-term Bull Flag pattern that has persisted for almost two years. A monthly candle close above 100 needs to be seen to confirm this breakout and the November candle has three more trading days to complete.
- Both FX Indices remain aligned for the time being as LONG US$ and SHORT EUR$.
USDX: The US$ closed higher last week making the first period of two consecutive weekly candles to close above the 100 level since April 2003; this is a significant achievement. The monthly chart’s bearish H&S has faded for now and the longer-term monthly chart’s Bull Flag pattern now looks to be evolving. A completed monthly candle needs to be seen to support one or other of these patterns though but the November candle does not close for another three trading days:
- A monthly candle close above 100 would support the Bull Flag pattern.
- A monthly close back below 98.50 would reinforce the potential of a bearish H&S.
As mentioned over many months, I have considered the US$ to be in no-man’s land though whilst it traded above 92.50 but below 100. I am waiting for monthly candle proof that this is true breakout from this region as this choppy and range-bound price action has gone on for almost two years. For now though, the levels to keep watching on the USDX are:
- The 95.50 level.
- The 98.50 level: the ‘Shoulder’ of a potential bearish H&S on the monthly chart.
- The psychological 100 level. This is the top of the longer-term trading range.
- The 92.50 level. This is the bottom of the longer-term trading range.
EURX: The EURX closed slightly higher last week too but remains below the key 100 level. Policy divergence continues to be in focus for the time being with the Eurozone trading within a monetary easing cycle and the US trying to emerge from one. The USDX is currently trying to make a bullish breakout from its long-term trading channel whereas the EURX remains within its channel.
There are more pressing issues for the single currency at the moment than just policy divergence issues however with various elections set to take place across Europe. Next weekend brings the Italian Referendum and this outcome could dictate whether the country opts to remains in the EU. The next couple of weeks are obviously important for shaping the next major directional move with the EUR$.
The levels to watch on the EURX continue to be:
- The 100 level; which is now resistance above current price.
- The weekly chart trading channel 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 channel 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 weekly chart’s 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 a more recent ‘Double Bottom’ level as seen on the weekly/monthly charts.
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.