The US$ failed to make any gains out of Friday’s decent NFP and has closed below the 95.50 or half way mark of the twelve+ month trading channel. The 92.50 level is the bearish target to keep watch of next week. The main point to note this week though is how the US$ seems firmly mired back within the weekly Ichimoku Cloud which is a bearish shift. Conversely, the EURX looks like it might try and emerge from its weekly resistance zone and, if successful, this would be a significant bullish shift and suggest a change in polarity for the index.
Monthly: The March candle closed as large bearish candle and 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.
Monthly Ichimoku: The March candle closed trading well above the Cloud.
Weekly: The weekly candle closed as a bearish engulfing candle. Price action remains range-bound between 100 and 92.50 and has been within this channel for over 12 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.
Weekly Ichimoku: The weekly candle closed within the weekly Cloud. Keep an eye on the ADX here next week as any uptick above 20 would suggest this reversal might continue.
Daily: Every day was bearish last week. The chart continues to show ‘lower highs and lower lows which remains bearish.
Daily Ichimoku Cloud chart: Price traded below the daily Cloud last week.
4hr: Price chopped lower last week.
4hr Ichimoku Cloud chart: Price traded in the 4hr Cloud to start the week but then chopped down through the Cloud to close the week below. This chart is now aligned with the daily chart and suggests SHORT US$.
Monthly: The March candle closed a bullish engulfing candle and holding well above the 94 level giving the chart a ‘Double Bottom’ appearance.
Monthly Ichimoku: The March candle closed below the Cloud.
Weekly: The weekly candle closed as a large bullish candle and still within a weekly Flag but only just. There have been two conflicting weekly-based technical patterns competing over recent months; a basing-style bullish ‘Double Bottom’ and a ‘Bear Flag’ but there still isn’t a clear winner just yet. Any bullish continuation might eventually target the 50% and 61.8% fib levels of this two-year swing low move.
Weekly Ichimoku: Price is trading within the top region of the weekly Cloud. Keep an eye on the ADX here next week as well as any uptick above 20 would suggest this trend reversal might develop further. I do note though that the +DMI is already above 20 and may be a clue of more to come here:
Daily: Price action chopped higher last week.
Daily Ichimoku Cloud chart: Price traded above the daily Cloud all of last week.
4 hr: Price chopped sideways and then higher last week.
4 hr Ichimoku Cloud chart: Price traded above the 4hr Cloud last week. This chart is aligned with the daily chart and suggests LONG EUR$.
- Both indices continue to hold within long-term Flag patterns that have persisted for over 12 months.
- The USDX and EURX are now aligned on their Ichimoku 4hr & daily charts for ‘risk-on’. These periods of alignment often, but not always, support decent trending markets and so I’ll be on the lookout for any such shift.
USDX: The US$ closed lower last week despite Friday’s strong US Manufacturing, and NFP Employment data. The headline unemployment rate rose slightly but the growth with wages and in the numbers employed was strong. However, this did little to boost the US$ and it closed Friday with a bearish coloured Doji candle. It seems that Federal Reserve Member utterances about a measured approach to any further US rate increases is dampening enthusiasm for the US$.
As I continue to claim though, I still consider the US$ 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 closed higher for the week but, as has been the case of late, this has little to do with Euro-related data and more to do with general US$ weakness. Despite this US$ weakness the fact remains that there is clear policy divergence with the Eurozone trading within a monetary easing cycle and the US trying to emerge from one and, so, this recent US$ weakness could still prove to be temporary. Hence I’m waiting for any breakout on both the US$ and EUR index Flag patterns.
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.