Battle Lines still in play with Brexit

Last week:  There was only one TC signal in play last week and that was a continuation signal on Gold that spiked up as much as 650 pips before closing off. FOMC and the Brexit vote have kept many FX pairs rather choppy of late and so smooth, trending TC signals off the 4hr time frame were not to be expected under such conditions. I’m hoping that trending markets might return after the dust settles following this week’s Brexit vote. 

This week:

Brexit: The main economic event on the trading calendar in the coming week is the Brexit vote on Thursday and I’m not expecting to see many 4hr-chart TC signals until after this event is over. Technical trading is a challenge in the face of such major economic news events but, like last week, I continue to focus on major long-term support and resistance levels because, for whatever reason, these levels often act like magnets for price action especially during periods of high volatility. The hope being that the eventual movement away from these major S/R levels might set up a decent trend trade once all the dust has settled. 

Brokers & Brexit: Caution will be needed by anyone choosing to trade across the Brexit event as significant market swings/spikes are expected. Make sure you are fully aware of your Broker requirements if you do place any trades across this event. 

US$: The US$ closed lower for the week despite the recent risk-off shift.  A review of the FX Indices can be found through the following link.

Gold: is sitting at a critical make or break level at $1,300 ahead of the Brexit vote.

Yen Pairs: I wrote an article back in February suggesting major support levels to watch on some Yen pairs in the event of any deeper pullback. Some of the pairs have now tested these levels and I’ll be watching to see if price action rebounds at all from here.

Risk-on vs Risk-off: I make mention of this concept a bit in this week’s post so please review my notes on this topic so that you understand my particular meaning. The relevant post can be found through the following link.

Stocks and broader market sentiment:

It’s of no surprise that many of the major stock indices closed with bearish weekly candles ahead of the Brexit vote with some obvious profit taking given the recent market HIGHs. However, the major US stock indices remain in consolidation-style Flag or channel patterns, and some with very little momentum, despite this latest retreat. This situation might change following the Brexit vote though and I’ll be watching for any trend line breakouts that evolve along with increased momentum.

S&P500 daily chart: The index closed below the 2,100 level but is still range bound for now. There is some bearish momentum picking up here but price remains above the 2,040 level.

S&Pdaily SPXdaily

S&P500 weekly: The index closed with a bearish candle and just below the Bull Flag’s upper trend line. Note much ADX momentum in play on the weekly chart:

S&Pweekly

NASDAQ weekly: Range bound and with little ADX momentum. It’s not much of a suprise but momentum is actually declining

NASDAQweekly

DJIA weekly: ditto here with declining momentum.

DJIAweekly

Russell 2000 Index: this small caps index is considered a US market ‘bellwether’ but, like the other majors, remains range bound for now and with little momentum.  The weekly candle was a bearish candle.

RUTweekly

VIX Index: The ‘Fear’ index has printed a bullish candle but is still below the 30 threshold level.

VIXweekly

Oil: Continues holding above the 2009 low of $33.50 but printed a bearish weekly candle. Watch for any pullback to the $40 level to support a bullish-reversal Inverse H&S pattern.

OilWeekly

Trading Calendar ‘High Impact’ data Items to watch out for:

  • Mon 20th: nil
  • Tue 21st: AUD Monetary Policy Minutes. EUR German Constitutional Court Ruling & German ZEW Economic Sentiment. USD Fed Chair Yellen testifies.
  • Wed 22rd: CAD Core Retail Sales. USD Fed Chair Yellen testifies & Crude Oil Inventories.
  • Thurs 23rd: (Second tier: EUR French, German & Flash Manufacturing & Services PMIs). USD Weekly Unemployment Claims. Brexit Vote
  • Fri 24th: EUR German Ifo Business Climate. USD Core Durable Goods.

Forex

E/U: The E/U chopped lower last week but found some trend line support and made its way back to the major 1.12 level again in the lead up to next week’s Brexit vote.

The 1.12 level is long-term S/R and a monthly chart-based 61.8% fib and, as per last week, this remains the Battle Line to watch in coming sessions.

The way I’d expect the Brexit result might play out on the EUR/USD is as follows:

  • Any Brexit LEAVE result would likely support a shift to risk-off with flows into the US$, Yen and Gold and, thus, I’d expect this pair to suffer.
  • Any Brexit REMAIN result might trigger a ‘risk-on’ rally and could see this pair supported.
  • Caveat: The situation for either result could be complicated though by EUR/GBP flows so watch for any impact from this.

The key levels to monitor on the EUR/USD include:

  • 1.12:      this is a major S/R level from the monthly chart as it is the 61.8% fib of the 2000-2007 swing high move.
  • 1.15:      a recent resistance level.
  • 1.18:      this is major long term S/R level (seen on the weekly chart).
  • 1.22:      weekly 200 EMA, a previous monthly triangle trend line and the 50% of the weekly chart’s 2014-2015 swing low move.
  • 1.045 /1.040: the recent & longer term support levels marking the lower boundary of a potential Bear Flag.

Price is now trading IN the 4hr, daily and weekly Clouds suggesting further choppiness.

The weekly candle closed as a bullish coloured ‘Spinning Top’ candle.

  • I’m watching for any new TC signal on this pair and the 1.12 level.

EUmonthly

EUmonthlyCloud EUweekly EUdaily EU4

E/J: In last week’s analysis I noted how any hold below the bottom wedge trend line would bring the weekly chart’s 61.8% fib, near 115, into greater focus and this breakout move gave a 450 pip move lower for the week.

As well as this, back in February I noted how the 115 level was major support for the E/J as it was the 61.8% fib of the weekly chart’s 2012-2014 swing high move. Last week’s price action came to within 50 pips of this 115 major level after pulling back some 3,300 pips and so my approximation was pretty spot on! The 115 level remains the Battle Line in focus for me this week.

The way I’d expect the Brexit result might play out on the EUR/JPY is as follows:

  • Any Brexit LEAVE result would support a shift to ‘risk off’ and flows into the US$ and Yen and thus I’d expect this pair to suffer.
  • Any Brexit REMAIN result might trigger a ‘risk-on’ rally and could see this pair supported. However, if the US$ retreats and takes the USD/JPY with it then this pair could suffer with that flow.

I’ve been posting this monthly Cloud chart on and off over recent months and the bearish Kijun /Tenkan cross did prove to be a bearish signal indeed! Watch for any monthly candle close and hold below the monthly Cloud:

EJmonthlyCloud

Price is trading below the Cloud on the 4hr, daily and weekly charts which is bearish.

The weekly candle closed as a bearish candle.

  • I’m watching for any new TC signal and the 115 level.

EJmonthly EJweekly EJdaily EJ4

AUD/USD: The A/U continues to hold near the key 0.74 level. There is the Brexit vote to contend with next week but, then, there is the Australian Federal election a week later and this may trigger some nervousness here too.

The 4hr chart shows price consolidating within a triangle around the major 0.74 level and this remains the Battle Line in focus for me.

The way I’d expect the Brexit result might play out on the AUD/USD is as follows:

  • Any Brexit LEAVE result would support a shift to ‘risk off’ with flows into the US$ and Yen and, thus, I’d expect this pair to suffer.
  • Any Brexit REMAIN result might trigger a ‘risk-on’ rally with flows away from the US$ and could see this pair supported.

Price is trading in the Cloud on the 4hr chart but below on the daily chart which suggests choppiness.

The weekly candle closed as a bearish coloured ‘Spinning Top/Doji’ candle.

  • I’m watching for any new TC signal on this pair, the 4hr chart’s triangle trend lines and the 0.74 level.

AUmonthly AUweekly AUdaily AU4

AUD/JPY:  In my write up back in February I noted the 75 level as a major S/R level for this pair. Price action came to within 60 pips of this during last week’s trading and this was after a fall of almost 2,700 pips from its peak so the target move wasn’t such a bad stab.

The way I’d expect the Brexit result might play out on the AUD/JPY is as follows:

  • Any Brexit LEAVE result would support a shift to ‘risk off’ with flows into the US$ and Yen and, thus, I’d expect this pair to suffer.
  • Any Brexit REMAIN result might trigger a ‘risk-on’ rally with flows away from the US$ and could see this pair supported. 

AUD/JPY traders need to keep an eye on the S&P500 index as well. Any bullish breakout on the S&P500 might take the AUD/JPY along with it but a bearish breakdown on the S&P500 would probably see this currency pair suffer too.

Price is trading below the Cloud on the 4hr, daily, weekly and monthly chart which is bearish BUT watch for any continued bounce up from the 75 region.

The weekly candle closed as a bearish candle.

  • I’m watching for any new TC signal on this pair and the key 75 level.

AJmonthly AJweekly AJdaily AJ4

GBP/USD: The GBP/USD continues to be vulnerable to the ups and downs of Brexit-related news and the daily chart reveals it has been pretty much contained within a channel formed up by the 1.40 and 1.46 levels.  However, the weekly chart still shows a descending wedge and this is within a monthly-chart descending triangle.

The way I’d expect the Brexit result might play out on the GBP/USD is as follows:

  • Any Brexit LEAVE result would support a shift to ‘risk off’ and flows into the US$ and Yen and thus I’d expect this pair to suffer.
  • Any Brexit REMAIN result might trigger a ‘risk-on’ rally and away from the US$ and could see this pair supported.

I will wait until after the Brexit vote result is our before considering any trades on the Cable but I continue to watch the following levels:

Bullish targets:

  • 1.46 level.
  • The descending wedge trend lines.
  • 1.50 S/R level.
  • 50% fib near the weekly 200 EMA and 1.55 S/R level.
  • 61.8% fib near the 1.60 S/R level and also near the monthly chart’s bear triangle trend line.

Bearish targets:

  • 1.40 S/R level.
  • 1.35 S/R level and GFC low region.
  • 1.30 level which is near the monthly chart’s 78.6% fib.
  • 1.05 region which is near the monthly chart’s 100% fib.

Price is trading in the 4hr Cloud and just below the daily Cloud which suggests choppiness.

The weekly candle closed as a bullish-reversal Hammer candle.

  • I’m watching for any new TC signal on this pair.

GUmonthly GUweekly GUdaily GU4

GBP/JPY:  My February notes on this pair suggested the 147 area as major S/R given it is the weekly chart’s 61.8% fib and this level was pierced last week in a bearish move that gave over 4,800 pips from the HIGH.

Price action closed the week just above this 147 level and this remains the Battle Line level for me with this pair.

The way I’d expect the Brexit result might play out on the GBP/JPY is as follows:

  • Any Brexit LEAVE result would support a shift to ‘risk off’ and flows out of the GBP and into the US$ and Yen and thus I’d expect this pair to suffer.
  • Any Brexit REMAIN result might trigger a ‘risk-on’ rally and away from the US$ and Yen and should see this pair supported.

Price is trading below the Cloud on the 4hr and daily charts which is bearish.

The weekly candle closed as a bearish candle.

  • I’m watching for any new TC signal on this pair and the 147 level.

GJmonthly GJweekly GJdaily GJ4hr

Kiwi: NZD/USD:  The NZD/USD has held above the key 0.70 S/R level for another week but remains within the weekly chart’s rising trading channel.

The 0.70 level is a long term S/R region on this pair, best seen on the monthly chart, and remains as the Battle Line level for me with this pair. 

The way I’d expect the Brexit result might play out on the NZD/USD is as follows:

  • Any Brexit LEAVE result would support a shift to ‘risk off’ and flows into the US$ and Yen and thus I’d expect this pair to suffer.
  • Any Brexit REMAIN result might trigger a ‘risk-on’ rally and away from the US$ and could see this pair supported.

Any hold above 0.70 and breakout from the trading channel would have me looking for a test of the 0.75 level as this is previous S/R and near the 50% fib of the weekly chart’s 2014-2015 swing low move.

The NZD/USD is trading in the top edge of the 4hr Cloud but above the daily Cloud.

The weekly candle closed as a bearish coloured ‘Spinning Top’ candle.

  • I’m watching for any new TC signal on this pair and the 0.70 level.

KiwiMonthly KiwiWeekly KiwiDaily Kiwi4

The Yen: U/J: My February notes on this pair suggested the 100 /101.50 area as major S/R but price held about 200 pips above this level last week. However, the whole decline from the 2015 High has been worth over 2,000 pips so this wasn’t too bad a target.

The U/J closed the week above this 100/101.5 level but it remains the Battle Line level for me to monitor on this pair.

The Brexit reaction for the USD/JPY is not as clear as on some of the other pairs, however, this is what I’m thinking:

  • Any Brexit LEAVE result would support a shift to ‘risk off’ and flows into the US$ and Yen BUT whether this pair rallies or falls depend on the relative flow towards both the US$ versus the Yen.
  • Any Brexit REMAIN result might trigger a ‘risk-on’ rally with flows out of the US$ and Yen BUT whether this pair rallies or falls depend on the relative flow towards both the US$ versus the Yen The flow may be more so out of the Yen and so this pair just might be supported.

Monthly Chart Bullish Cup’ n’ Handle pattern: There still looks to be a longer-term bullish Cup ‘n’ Handle forming up on the monthly chart. The theory behind these patterns is that the height of the ‘Cup’ pattern is equivalent to the expected bullish move from the ‘handle’ breakout. The height of the Cup for the U/J weekly chart is around 4,800 ~ 4,900 pips. This may seem like a massive move but the longer term chart below shows this move to be reasonable as it would take the U/J up near the 50% fib of the 1985-2012 swing low move. Note the 101.5 level on the other monthly MT4 chart though. Any pullback down to this level, apart from helping to form up the huge Handle for the Cup ‘n’ Handle, would also help to develop a bullish ‘Inverse H&S’ pattern.

UJmonthlyCloud

Price is trading below the Cloud on the 4hr & daily charts which suggests bearish U/J.

The weekly candle closed as a bearish candle.

  • I’m watching for any new TC signal on this pair and the 100 / 101.5 level.

UJmonthly UJweekly UJdaily UJ4

USD/CAD: I noted in last weekend’s post how the 1.30 remains a key level on this pair and that the 4hr chart revealed a 61.8% pullback would bring price right back to this 1.30 region. We got the pullback right to this level on Thursday but it closed the week below 1.30. The 1.30 remains as the Battle Line for me with this pair. 

The way I’d expect the Brexit result might play out on the USD/CAD is as follows:

  • Any Brexit LEAVE result would support a shift to ‘risk off’ and flows into the US$ and Yen and thus I’d expect this pair to be supported.
  • Any Brexit REMAIN result might trigger a ‘risk-on’ rally and away from the US$ and could see this pair weaken.

Price is trading in the Cloud on the 4hr, daily and weekly charts suggesting further choppiness around this key 1.30 level.

The weekly candle closed as a bullish-reversal ‘Inverted Hammer’ candle BUT below major 1.30 support.

  • I’m watching for any new TC signal on this pair and the 1.30 level.

LoonieMonthly LoonieWeekly LoonieDaily Loonie4hr

EUR/AUD: The EUR/AUD remains in a recent trading channel formed up by 1.565 and 1.52 with the key 1.55 level in the middle of this range. This channel is set within a large monthly chart triangle.

Price is trading just below the Cloud on the 4hr chart and just above the Cloud on the daily charts suggesting continued choppiness.

The weekly candle closed as a bullish coloured ‘Spinning Top’ reflecting indecision.

  • I’m watching for any new TC signal on this pair and the 1.55 level.

EAmonthly EAweekly EAdaily EA4

GBP/NZD: The GBP/NZD is down near major trend line support and this remains the level to watch in coming sessions for any make or break activity. The 4hr chart shows that a recent bear trend line has been broken to the upside and so I’m watching for any follow-through.

The way I’d expect the Brexit result might play out on the GBP/NZD is as follows:

  • Any Brexit LEAVE result would support a shift to ‘risk off’ with flows out of the GBP and into the US$ and Yen, thus, I’d expect this pair to weaken.
  • Any Brexit REMAIN result might trigger a ‘risk-on’ rally, and a relief rally for the GBP especially, and so this pair could strengthen.

The GBP/NZD is trading below the Cloud on the 4hr, daily and weekly charts suggesting a bearish bias.

The weekly candle closed as bullish-reversal ‘Hammer’ candle.

  • I’m watching for any new TC signal on this pair and the bottom triangle trend lines.

GNmonthly

GN4hr

EUR/GBP: The 500 pip bullish ‘inverse H&S’ move has completed but I’m watching for any test of the weekly chart’s triangle bear trend line and this remains the region to watch in coming sessions.

EGmonthly

Gold:  Gold briefly broke out above $1,300 last week but closed the week just below this key threshold. This $1,300 level is the Battle Line for me with this metal in the coming week.

I did place fibs on the 4hr chart’s recent swing high move and note that a 61.8% fib pullback would bring price back down near the $1,250 level and this depth of retreat could be considered as reasonable, even if there is to be ultimate bullish continuation. We didn’t get a dip down this far on Friday but, with the weekly close below $1,300, I’m still watching this level into next week.

The situation for Gold with the Brexit vote could be a little complex:

  • With any Brexit LEAVE result I would expect Gold to rally with ‘Flight to Safety’ flow activity.
  • With any Brexit REMAIN result the situation is not as clear, for me at least. There could be a ‘risk-on’ relief rally that could see Gold supported, especially if the US$ pulls back. However, a risk-on rally with flows into stocks and commodity currencies could evolve at the expense of Gold in which case it could suffer. Thus, I am keeping an open mind here.

The following levels remains on my radar with Gold:

Potential Bullish targets include:

  • The $1,300 level.
  • The monthly chart’s bear trend line.
  • The weekly chart’s 2012-2015 swing low 50% fib near $1,415.
  • The weekly chart’s 2012-2015 swing low 61.8% fib near $1,500.
  • The monthly chart’s 2011-2015 swing low 61.8% fib near $1,600.

Potential Bearish targets include:

  • The bottom of the recent trading channel at $1,200.
  • The monthly chart’s 2007-2011 swing high 61.8% fib level near $1,150.

Gold is now trading above the Cloud on the 4hr, daily and weekly charts which is a bullish shift.

The weekly candle closed as a bullish candle.

  • I’m watching for any new TC signal here and the $1,300 level.

GoldMonthly GoldMonthlyCloud GoldWeekly GoldDaily Gold4hr

 

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