FX rather quiet but are stocks giving us a hint here? by Mary McNamara

Last week:  Last week was rather quiet for TC given the thinner markets due to Christmas. Signals from the previous week closed off and there was only one new signal on the Kiwi in the closing hours of Saturday: E/U= 170 and the Swissie = 100. This trading slack was taken up by stocks however and the NASDAQ stocks I’m trading enjoyed a good run. I’m wondering if this late run with stocks might be hinting at more of the same to come.

This week:

The USD index has managed to print a weekly close above the 90 barrier and a monthly and yearly close above 90 would be a bullish signal. A review of the FX indices can be found through this link:

USD Index weekly chart:

DXYweekly

As mentioned last week, the result of any monthly/yearly USDX candle close above 90 will have implications for the following FX pairs as many of them approach significant ‘make or break’ levels of their own:  

  • USD/CAD: is this trying for the first monthly candle close above the monthly 200 EMA in over 6 years to continue on its 2,500 pip triangle breakout?
  • USD/CHF: is this about to make a 1,000 pip bullish Cup ‘n’ Handle breakout?
  • EUR/USD: is approaching major support and I’m looking for some reaction here. A bearish breakdown though might signal the start of a 4,000 pip triangle breakout move.
  • AUD/USD: currently poised just above major 0.80 S/R. Which way will it head from here though?
  • NZD/USD: poised just above 0.77 but any bearish breakdown could trigger a 1,000+ pip Bear Flag move.

The NASDAQ (high tech-stock focus) and Russell 2000 (small cap stocks) are both approaching bullish breakout levels. Success here for these two could just drag the broader market along with them. For this reason I think they are well worth monitoring, if not, trading!

Next week is a shorter trading week with New Years Day falling on Thursday. Watch for monthly candle close formations and new monthly pivots after that.

Further TC updates will be brief and few until after Monday 5th January.

Events in the Ukraine and the Middle East, as well as with Ebola, continue to have the potential to undermine any developing ‘risk’ appetite and need to be monitored.

Stocks and broader market sentiment:

US stocks continued the ‘Santa Rally’ and the S&P500, DJIA, NASDAQ and Russell 2000 all printed bullish weekly candles. The S&P and Dow closed at record levels, the Russell 2000 seems to be marching on with its Bull Flag breakout and the NASDAQ printed a bullish weekly candle close above 4,800 for the first time since March 2000!

This week will be a telling one for the NASDAQ as any close above 4,800 after Thursday would be the first ever monthly and yearly candle close above 4,800! The S&P500 and DJIA have barely looked back since making their respective bullish triangle breakouts and I suspect that the NASDAQ could follow the same path here following any monthly close above 4,800:

NASDAQ monthly:

NASDAQmonthly

I am still seeing divergence on the monthly S&P500 monthly chart and whilst this might just be warning of a pause, as the index navigates these new highs up circa 2000, the chance of a pullback cannot be ruled out either. There has not been any real deep pull back since the break up through the 1,577, 1,600, 1,700 and 1,800 levels and the major break of the 1,577 level was only tested once. 

Thus, with all of this, I continue to watch out for further clues as to any new momentum move, long or short though! In particular I’m looking out for:

S&P500 daily chart: The index is above the daily trend line and is holding above the key 2,000 level for now. A test of 1,900 still wouldn’t break daily support though:

S&Pdaily

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. The daily chart’s Tenkan/Kijun lines are still fused for the time being. Any new bullish cross would be deemed a ‘strong’ signal though:

S&PdailyCloud

S&P500 monthly chart: a break of the monthly support trend line (see monthly chart). The monthly trend line remains intact. 

S&Pmonthly

Russell 2000 Index: this small caps index is a bit of a US market ‘bellwether’. The index continues to hold out from a ‘Bull Flag’ breakout and is currently up testing the 1220 level. This will be the key level to watch here this week as the monthly and yearly candles close off. Any close above 1220 after Thursday would be a VERY bullish signal for the whole stock market and ‘risk on’ sentiment could even spill over into FX:

RUTweekly

VIX Index: this recently broke up and out of a descending triangle pattern but is back near the 14 level.

VIXweekly

Bonds: The bond ETF remains above the triangle breakout. The bullish breakout from the Cup ‘n’ Handle pattern has held for now:

TLTweekly

Oil: Last week’s bullish-reversal ‘Hammer’ candle didn’t help much here as price fell again last week along with a stronger USD. One positive to take away here though is that slide with stocks, that had accompanied the recent drop in Oil, has stopped:

CLweekly

Trading Calendar Items to watch out for:

  • Mon 29th: nil.
  • Tue 30th: USD Consumer Confidence.
  • Wed 31st: CNY HSBC Final Manufacturing PMI. USD Unemployment Claims.
  • Thurs 1st: CNY Manufacturing PMI.
  • Fri 2nd: GBP Manufacturing PMI. USD ISM Manufacturing PMI.

E/U: The E/U chopped lower last week and the TC signal has now closed off but delivered up to 170 pips. Price ended the week down near the bottom of a recent trading channel and also below the previous week’s low however there is major support just below current price.

The E/U is now only about 80 pips above a monthly chart triangle support trend line and just over 360 pips or so above the monthly chart’s descending triangle trend line. Price is also now sitting at the 50% fib of the 2000-2008 bull run and this may offer some support to the E/U (chart below). Thus, it is getting close to make or break time for the E/U. These three support levels will be in focus in coming sessions to see whether they are able to stem the bearish flow here:

E/U monthly Cloud chart showing 50% fib support:

EUmonthlyCloud

Descending triangle on the monthly chart: the descending triangle pattern is a bearish continuation pattern and has a base at around the 1.18 level. The height of this triangle is about 4,000 pips. Technical theory would suggest that any bearish breakdown of this triangle below 1.18 might see a similar move. It is worth noting that this would bring the E/U down near 0.80 and to levels not seen since 2000/2001! 

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

The weekly candle closed as a bearish candle following last week’s ‘bearish engulfing’ candle.

The fundamental and technical picture looks bearish for the E/U BUT I am keeping an open mind here. I would not be at all surprised to see the E/U bounce and share the joy of some ‘risk on’ style of trading IF stocks continue with their bullish run. There is a fair bit of technical support below current price that could enable such an outcome and, if price is going to put ina any bounce, this region would be the region to try and to do so.

  • I’m watching for any new TC signal on this pair and the support trend lines below current price.

EUmonthly EUweekly EUdaily EU4

E/J: The E/J continued trading within a symmetrical triangle pattern last week. Price looks to be trying to break down from this triangle though AND to form a new TC signal. However the E/J is trading within the 4hr Cloud and so I’d need to see price trade below this Cloud before any TC short signal was valid. Also, the weekly candle has a bullish-reversal ‘Inverted Hammer’ look to it that has me a bit wary through these thin markets:

E/J 4hr Cloud chart: price is within the Cloud:

EJ4hrCloudThere is still a chance of a deeper pull back here and possible pull back targets still include: 

  • The 38.2% fib near the key 143 level.
  • The 50% fib near the daily 200 EMA circa 141.5.
  • The 61.8% fib near the key 140 level. This level is also near the trend line from the previous weekly chart’s triangle breakout and it is near the 61.8% fib of the monthly charts major bear move. Thus, there is a lot of confluence in this region.

Price is now trading in the Cloud on the 4hr but above on the daily, weekly and monthly charts.

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

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

EJmonthly EJweekly EJdaily EJ4

A/U: The A/U chopped down towards 0.81 last week and has only about 100 pips or so further to go to complete the Bear Flag pattern.  

Bear Flag? The Bear Flag is looking very messy but the 0.865 was the key level to watch. The ‘Flag Pole’ for any A/U Bear Flag had a height of about 630 pips. Thus, the expected move for any bearish breakdown was expected to be of about 630 pips as well. This projected a bearish target down from 0.865 to near the 0.80 level. This was significant as this was also the 61.8% pull back for the 2008-2011 bull run.

The A/U had been trading below a bear trend line for the last 5 weeks but has now stumbled across this resistance zone. Reduced trading volumes may be the reason for this low key apparent ‘break’ but a bounce, even if only temporary, may not be totally out of order for the A/U. As with the E/U, I’m watching for any possible sentiment pick-up on the Aussie that might tag along with any continued bullish momentum on stocks. Traders can expect to see the 80 level offer some decent support for the A/U as this is the region of the 61.8% fib from the 2008-2011 bull run and the 50% fib of the 2001-2011 bull run. Conversely, a break of 0.80 support would suggest a trip lower, possibly down to the 70 region where the next layers of fib support kick in:

A/U monthly chart: showing S/R levels:

AUmonthlyCloud

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

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

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

AUmonthly AUweekly AUdaily AU4

Kiwi: NZD/USD:  The Kiwi chopped along above the 0.77 S/R level last week and, despite thin trading, triggered a new TC signal to ‘long’ off my 3 am Saturday candle. It is hard to see much bullish momentum developing here however if the USD keeps rallying above 90. One source of hope might come from any continued stock rally though.

Bear Flag for Kiwi: The 0.77 remains the key level to watch here as any break and hold below this level would trigger the start of a possible ‘Bear Flag’ move. The ‘Flag Pole’ for the Kiwi’s ‘Bear Flag’ is about 1,100 pips. Thus, any bearish breakdown and continuation below the ‘Flag’ trend line may be expected to extend by 1,100 pips as well. This would bring the Kiwi down to near 0.67 cents. This level is between the 61.8 and 78.6% fibs of the 2009-2014 bull run. Given that the 0.77 is strong support I would still prefer to wait to confirm any possible ‘Bear Flag’ move until there is a close and hold below this 0.77 level. The 0.77 remains a significant S/R level for the Kiwi. This level represents the previous swing low for the period during mid-2013 and, prior to then, from mid-2012. 

Fib levels shows other possible targets for any bearish continuation below 0.77 as being the:

  • 38.6% fib near 73.5.
  • 50% fib near 70 and the weekly 200 EMA.
  • 61.8% fib near 0.65.

Price is trading above the Ichimoku Cloud on the 4hr chart (just) but below on the daily and weekly charts and in the top edge of the Cloud on the monthly chart.

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

  • There is a new TC ‘Long’ signal on this pair.

KiwiMonthly KiwiWeekly KiwiDaily Kiwi4

The Yen: U/J: The previous week’s triangle breakout continued into last week and gave up to 200 pips. The TC signal eventually evolved here too as well.

Price is now back trading above the Cloud on the 4hr, daily, weekly and monthly charts which is bullish. November 2013 was the first monthly candle close above the Ichimoku Cloud since mid-2007 and the bullish hold above the monthly Cloud continues to be noteworthy.

The weekly candle closed as a small bullish candle.

Weekly Chart Bullish Cup’ n’ Handle pattern: This pattern is close to its climax! 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 2,400 pips. The interesting point here is that a 2,400 pip bullish move up from the ‘Handle’ would put price up near the 124 level. This level is the last major swing high for the U/J from back in 2007 and represents the 100% fib pullback for the move down in 2007 to the lows of 2012. This pattern has already delivered up to 1,800 pips of the 2,400 pip target!

  • I’m watching for any new TC signal.

UJmonthly UJweekly UJdaily UJ4

G/U: The Cable chopped lower last week and the bearish hold below the 61.8% fib still suggests a move down to 1.53. This is the region of the monthly chart’s triangle support trend line, the 78.6% fib and is a long term S/R level that can be best seen on the monthly chart. Any bullish breakout on the USDX above 90 would help to bring about this bearish move. However, any continued bullish run on stocks could shift sentiment here as well so I am keeping an open mind.

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

The weekly candle closed as a bearish candle.

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

GUmonthly GUweekly GUdaily GU4

USD/CAD: The USD/CAD continued to chop around within a triangle pattern and above the support of the monthly 200 EMA S/R zone last week.

The monthly candle has yet to close but it is currently trading above this monthly 200 EMA, as noted above. It is worth noting that the last bullish monthly candle close above this monthly 200 EMA was back in February 2009, almost 6 years ago, and so if this evolves it will be a significant achievement. It is also the longest bullish hold above the monthly Cloud since 2002. Both of these achievements can be seen in the chart below:

Loonie: Monthly Cloud chart:

LoonieCloudMonthly

Triangle breakout target:  The Loonie has already broken up and out from a major monthly chart triangle pattern that could deliver up to 2,500 pips. This 2,500 pip figure is evaluated from the height of the triangle. I have used the triangle height from the beginning of the bull trend line, as shown in the monthly chart below. The height of the triangle is around 2,500 pips and, thus, this would be the expected move from any breakout action. This is where it gets interesting! Extrapolating a bullish move from this triangle places price up at the 61.8% fib level. These fibs levels are popular targets in retracement moves and so this adds some confluence to this as a possible target.

Price is trading above the Cloud on the 4hr, daily, weekly and monthly charts which is bullish.

The weekly candle closed as a small bullish candle with a long upper shadow reflecting some indecision here.

There could be a deeper pull back here but if the USD index keeps going above 90 this pair might keep moving higher and the monthly 200 EMA might be a new base worth trading from.

  • I’m watching for any new TC signal on this pair, the monthly 200 EMA and the 4hr chart’s triangle trend lines.

LoonieMonthly LoonieWeekly LoonieDaily Loonie4hr

USD/CHF: The Swissie continued to chop around last week near the upper trend line of the ‘Handle’ of the weekly chart’s bullish Cup ‘n’ Handle pattern. Price has closed above this Handle pattern and this would seem to suggest a start to this bullish pattern. The 0.975 is a major S/R level here though and I would not be surprised to see this level tested again, even if there is to be bullish continuation.

The other technical feature to remember here is the inflection-point shift seen on the monthly chart. A 14 year bear trend line was broken back in July 2014 and this major shift was associated with strong momentum, as reflected by the ADX. This polarity shift alone supports a ‘long’ trade focus but I continue to wait for any confirmed ‘Handle’ breakout of the Cup ‘n’ Handle pattern!

The Swissie is now trading above the Cloud on the 4hr daily, weekly and monthly charts which is bullish. The more interesting chart is the monthly Ichimoku chart with the Swissie holding above the Cloud for the longest time since 2002!

SwiiseMonthlyCloud

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

  • I’m watching for any new TC signal on this pair, the 0.975 and the ‘Handle’ trend lines as well.

SwissieMonthly Swissieweekly Swissiedaily Swissie4hr

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