Fed talk lifts US$, but, for how long?

Some hawkish comments from a normally dovish Fed member helped the US$ to pare back some of its losses this week but it couldn’t reclaim the key 95.50 S/R level. Despite some increasingly hawkish Fed rhetoric the US$ still closed lower for the week and the EUR$ higher. One has to wonder if the usual positive correlation between hawkish Fed commentary and a rising US$ will last. I’m on the lookout for any make or break of this nexus.

USDX

Monthly: The September candle is printing a bearish candle. The monthly chart still shows a Bull Flag forming 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 break and hold back above 100 might be expected to target this region.

dxymonthly

Monthly Ichimoku: The September candle is trading well above the monthly Cloud and note how the Bollinger bands are beginning to open out. Note, also, the declining momentum.

usdxmonthlycloud

Weekly: The weekly candle closed as a bearish, essentially ‘engulfing’, candle but with a long lower shadow revealing the recovery late on Friday. Friday’s recovery still wasn’t able to reclaim the psychological 95.50 level though and this will be back in focus next week. Overall though, price action remains range-bound between 100 and 92.50 and ­has been stuck within this channel for over 20 months. Any break and hold below 92.50 would have me looking for a potential move down to test the congested area containing the monthly 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 has again closed below the weekly Cloud.

usdxweeklycloud

Daily:  price action had the full range of candle types last week; a small bearish candle with a long lower shadow, a large bearish candle, a small bullish ‘Spinning Top’ / ‘Inside’ candle, a Long-Legged Doji and then another large candle but this time bullish. It’s safe to say that all of this adds up to ‘indecision’. Note the new triangle pattern on this daily time frame.

usdxdaily

Daily Ichimoku Cloud chart: Price moved down from being within the daily Cloud last week but recovered on Friday to close back in the daily Cloud.

usdxdailycloud

4hr: Price broke down from a triangle early in the week and moved down through the 95.50 support level. The index came to rest near the 61.8% fib of last week’s swing high move and proceeded to chop around there until Friday. Bullish activity on Friday catapulted the US$ higher BUT it still couldn’t take out the 95.50 level as this previous support has now become resistance. This will be the level to watch next week for any make or break activity. The first of the 4hr charts below shows last week’s activity and respect of the earlier fib. The second chart shows a new 4hr chart triangle within the daily chart’s triangle. It also shows new fib levels mapping last week’s swing low move and note how the 61.8% fib is near the key 95.50 level. Confluence!usdx4

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4hr Ichimoku Cloud chart: Price moved down through the 4hr Cloud last week but recovered Friday to close within the Cloud. The US$ is in the Cloud on the 4hr and daily time frame suggesting US$ choppiness.

usdx4hrcloud

EURX

Monthly: The September candle is trading as a bullish coloured ‘Spinning Top’ candle but well above the 94 level supporting the monthly chart’s ‘Double Bottom’.

eurxmonthly

Monthly Ichimoku: The September candle is still trading below the Cloud though but note how the Bollinger bands are opening up here too. Note also the lack of momentum.

eurxmonthlycloud

Weekly: The weekly candle closed as a bullish, almost ‘Engulfing’, candle but still within the weekly chart’s trading channel. There have been two conflicting weekly-based technical patterns competing over many months; 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 continuation might eventually target the 50% and 61.8% fib levels of this two-year swing low move.

eurxweekly

Weekly Ichimoku: Price action continues to hold above thin weekly Cloud. This is the ninth full weekly-candle to clear the weekly Cloud which continues to be a bullish signal.

eurxweeklycloud

Daily: Monday and Friday were bearish days but the rest were bullish. Price broke down through the key 100 support level but that was short lived. The 100 level will be the one to watch in coming sessions though.

eurxdaily

Daily Ichimoku Cloud chart: Price held above the Cloud last week.

eurxdailycloud

4 hr: Price had been trading within a descending trading channel for the last few weeks but the 61.8% fib of the recent swing high move kicked in with support enabling the index to bounce such that on Thursday it eventually broke up and out of this channel. Friday’s bullish US$ activity though triggered a pullback on the EURX and, whilst it tested the channel trend line, it managed to hold above this breakout zone to see out the week. The psychological 100 level is just below price again though and will be the level to watch next week for any make or break activity. The first 4hr chart below shows last week’s activity but the second chart shows new fibs mapping last week’s swing high move. Note how the key 100 level is near the 61.8% fib and also the weekly and monthly pivots plus the 4hr 200 EMA! Lots of confluence here!

eurx4

eurx4

4 hr Ichimoku Cloud chart: Price moved up through the Cloud last week and, despite pulling back to test the top of the Cloud on Friday, it managed to close the week above the Cloud. This chart is back to being aligned with the daily chart for LONG EUR$.

eurx4hrcloud

General:

  • Both indices continue to hold within long-term broad Flag patterns that have persisted for over 19 months. 

USDX: The US$ closed lower last week as, despite some hawkish Fed commentary on Friday, there was too much damage done earlier in the week following disappointing US data. The weak US Non-Manufacturing PMI data had followed on the heels of the previous week’s disappointing NFP and Tuesday proved to be a bad for the US$ where it broke back down through the key 95.50 support. This broken support level has turned again now to be resistance and it kept the US$ in check on Friday whilst it tried to recover. I will be watching to see whether this level will be taken back next week.

Despite these gyrations around the 95.50 level I still consider the US$ to be in no-man’s land though whilst it trades above 92.50 but 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 18 months.

The levels to keep watching on the USDX are:

  • The 95.50 level; which is now resistance and is just above current price.
  • The psychological 100 level above current price. This is the top of the longer-term trading range.
  • The 92.50 level below current price. This is the bottom of the longer-term trading range.

There is a fair bit of US$-sensitive data next week, but not until later in the week, so watch to see how these items impact the US$.

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EURX:  The EURX closed higher last week and, whilst this was due to some Yin and Yang reaction to US$ weakness earlier in the week, there was also some EUR$ chutzpah that kicked in after the ECB held steady on the QE front. Price dipped below the key 100 level temporarily but recovered rather quickly. This level had previously been resistance but remains as support under current price and continues to be the level to watch for any make or break activity.

Traders still need to remember that there is policy divergence between Europe and the US with the Eurozone trading within a monetary easing cycle and the US trying to emerge from one. For the time being, though, both FX Indices remain trading within long-term trading channels and so I continue to wait for any decisive breakout from these resistance zones.

There isn’t much EUR$-sensitive data next week but Tuesday brings an ECB President Draghi speech and German ZEW Economic Sentiment. Given that weak German trade data rattled stock markets at the end of last week then this latter item might prove pivotal as well!

The levels to watch on the EURX continue to be:

  • The 100 level; which is now support under current price and the 4hr chart’s 61.8% fib.
  • 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.

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