FX: triangles everywhere, so, you know what that means!

Last week: There were a few mixed TC signals last week but looking to the FX Indices helped to explain this somewhat. The FX Indices are out of alignment and this helps to understand the variable TC signal performance.

However, whilst my TC signals were mixed, my warning about pullbacks on the Yen pairs was spot on and this delivered many hundreds of pips across the four JPY pairs on my radar. There was a broad-based sell off across stock markets last week as good news, that is, no talk of further ECB easing and the possibility of the US economy coping with a rate hike, was digested as bad news. The FX indices remain out of alignment though and so I will continue to proceed with caution on any new TC signals in coming sessions. The TC Signal performance was: E/U= 70, Kiwi= 70 Silver= -30 and GBP/USD = -60

This week:

US$: The US$ closed lower for the week and failed to break back above the 95.50 S/R threshold despite a late end-of-week rally. A review of the FX Indices can be found through the following link.

Data: There is a lot data to navigate next week with two Central Banks reporting Interest rate updates: BoE and SNB. There is a lot of USD data as well which might offer some guidance for the US$. It’s an especially busy week for the GBP too with CPI, PPI, RPI and HPI data on Tuesday and then Employment data on Wednesday, Retail Sales and an Interest Rate update on Thursday.

Triangles: Choppy price action of late has meant that a large number of FX pairs are forming up within triangle patterns. In fact, there are triangles on almost every pair I monitor! These can be seen on the EUR/USD, EUR/JPY, AUD/USD, AUD/JPY, NZD/USD, GBP/USD, USD/JPY, GBP/JPY, Silver and even the USD/CAD. This means that there is a lot of indecision around at the moment and so we end up seeing this ‘back and forth’ price action, or consolidation, to form the triangle pattern. On the bright side though it also means that we have trend lines to monitor for any momentum-based breakout and this can often be a huge trading help!

GBP/USD: it is a big week for the Cable and, as such, I have posted a separate and more detailed analysis about this pair that can be found through the following link.

Stocks: Stocks were hammered last week and the S&P500 monthly chart is starting to form up with a bearish-reversal ‘Evening Star’ pattern. This will be worth keeping an eye on as the month progresses.

Reminder: I am heading overseas for October whilst I trial my algorithm off shorter time frame charts during the European and US trading sessions. Updates will be pretty normal for the next two weekends but may vary over the following four weeks.

Stocks and broader market sentiment:

Stocks were hammered on Friday in what looks more like a ‘good news is bad news’ reaction to some Central Bank activity. The ECB president, Mario Draghi, failed to talk about further ECB easing and Fed talk about the prospects of normalising US interest rates, events which should signal a vote of confidence in the broader economy, were digested by the markets as bad news. I see this type of reaction akin to one you might expect when removing lollies from a child, candy from a baby or crack from a drug addict. Choose your preferred analogy here but the latter might be the more appropriate one for the current markets! I’ll be keen to see if, or for how long, this ‘good news is bad news’ reaction lasts. I am still cognizant that the S&P500 has not really made a decent test of the breakout 1,600 level and so do wonder if this current malaise might develop sufficiently enough to bring about just such a test! (click on the charts to enlarge the view):

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 continues to hold up from the Bull Flag but closed back below the 2,135 breakout level. I had been looking for a test of this 2,135 level and now we’ve got it. The big question for me now is: will we get the test of the 1,600 level?

S&P500 weekly: The index closed with a large bearish candle, the largest % drop since February, but continues to hold above the Bull Flag’s upper trend line. Note also the lack of ADX momentum here still though!

S&P500 monthly: Note the bearish-reversal ‘Evening Star’ type pattern setting up on the monthly chart! Remember: I am open minded about a test of the 1,600 level as per the multi-year chart posted above:

Russell 2000 Index: this small caps index is considered a US market ‘bellwether’ and continues to hold above the Flag supporting a bullish breakout but last week’s candle was a bearish ‘engulfing’ candle and closed back below the key 1,220 level.

VIX Index: The ‘Fear’ index has printed a large bullish candle and closed above the 14 threshold level. The percentage gain was huge though at 46%, the largest this year. It’s worth checking the monthly chart though too as this gives more perspective here.

Oil: Oil continues holding above the 2009 low of $33.50 and printed a bullish-reversal ‘Inverted Hammer’ candle off $45 support. Watch now for any continuation and test of the $50 level as this is ‘neck line’ for my bullish-reversal Inverse H&S pattern.

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

Mon 12^th: USD Fed speech (have added this one in given the Fed speech last Friday caused so much fuss!)
Tue 13^th: CNY Industrial Production. GBP CPI. EUR ECB President Draghi speaks & German Zew Economic Sentiment.
Wed 14^th: GBP Employment data & Inflation Report Hearings. USD Crude Oil Inventories.
Thurs 15^th: NZD GDP. CNY Bank Holiday. AUD Employment data. CHF SNB Monetary Policy Assessment. GBP Retail Sales & BoE Monetary Policy update. USD Core Retail & Retail Sales, PPI, Philly Fed Manufacturing Index & Unemployment Claims.
Fri 16^th: CNY Bank Holiday. CAD Manufacturing Sales. USD CPI & Prelim UoM Consumer Sentiment.

FOREX:

EUR/USD: The E/U chopped higher last week within the daily chart’s triangle pattern to reclaim the key 1.12 level and this momentum gave a new TC LONG signal. Bullish US$ activity on Friday though helped to close this signal off but it is worth noting that the E/U still held the 1.12 level into the weekly close. I also note that it came to rest for the week at the 61.8% fib of the recent swing high move!

The 1.12 level remains a key level to keep in focus as it is the monthly chart’s 61.8% fib of the 2000-2007 swing high move. The chart below shows how we are up to the 20^th monthly candle chopping around near this key 1.12 level:

The daily chart shows that price has been consolidating in a range bound by the 1.15 and 1.045 levels for the last 18 months and there is also a developing triangle pattern.

The key levels to monitor on the EUR/USD remain as:

The 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.
The 1.15: a recent resistance level.
The 1.18: this is major long term S/R level.
The 1.22: near weekly 200 EMA, a previous monthly triangle trend line and it is the 50% of the weekly chart’s 2014-2015 swing low move.
The 1.045 /1.040: the recent & longer term support levels marking the lower boundary of a potential Bear Flag.

Price is trading in the top edge of the 4hr Cloud but above the daily and weekly Clouds.

The weekly candle closed as a bullish candle.

Traders need to watch how next week’s US data impacts the US$ and, thus, this pair.

I’m watching for any new TC signal on this pair, the daily chart’s triangle trend lines and the 1.12 level.

EUR/JPY: I wrote last week to watch this pair for any pullback to the 4hr chart’s 61.8% fib level and that is exactly where price headed last week to the tune of 200 pips! Price subsequently bounced up from this fib support and moved back above the key 115 level where it stayed until the end of the week.

This pair continues to look like it is consolidating before its next big move and I remain open minded about the next direction. I will use the 115 S/R level as my guide and would read any new move back above this level as bullish.

Note the new triangle on the daily chart giving us trend lines to watch for any breakout. There is also another, smaller triangle on the 4hr chart that is sitting within this daily chart triangle so there are a few layers of support to monitor.

Price is trading in the Cloud on the 4hr and daily charts suggesting choppiness.

The weekly candle closed as a small bearish coloured candle with a long lower shadow.

I’m watching for any new TC signal on this pair, the daily chart’s triangle trend lines and the 115 level.

AUD/USD: Price action chopped higher last week, making the most out of the US$ weakness earlier in the week, and it moved back above the 0.76 level and the 3¹/₂-year bear trend line. Price retreated towards the end of the week though as the US$ picked up steam and the Aussie moved back below the 0.76 level and a recent 4hr chart 61.8% fib.

The daily chart shows a support trend line still in place and so I’ll be watching this region next week for any make or break activity. A break below this trend line would have me looking towards the 0.72 level as this is an S/R zone and the daily chart’s 61.8% fib level. There is a more recent support trend line in place here too that is also worth noting.

Price is trading below the Cloud on the 4hr chart but just at the top edge of the Cloud on the daily chart.

The weekly candle closed as a small bearish candle with a long upper shadow.

Traders need to watch out for impact from CNY Industrial Production data on Tuesday and AUD Employment data on Thursday as well as all of the the USD data.

NB: I have relaxed the upper 3¹/₂-year bear trend line a bit to capture recent Highs on the 4hr and daily chart time frames.

I’m watching for any new TC signal on this pair, the daily & 4hr chart’s triangle trend lines and the 0.76 and 0.72 levels.

AUD/JPY: Price action chopped lower last week following the bullish run from the previous week and formed up into a triangle pattern by mid-week. Price broke down from this 4hr triangle on Friday though and came to rest just above the recent 61.8% fib level.

The daily chart now shows a broader triangle forming up as the A/J seems to keep trying to navigate its way between the 75 support and 80 resistance levels. The bottom trend line of this triangle ties in with the 4hr chart’s 61.8% fib giving us a support level to watch early next week.

Price is trading below the Cloud on the 4hr chart and in the Cloud on the daily chart.

The weekly candle closed as a bearish candle.

Traders need to watch out for impact from CNY Industrial Production data on Tuesday and AUD Employment data on Thursday as well as all of the the USD data.

I’m watching for any new TC signal on this pair, the daily chart’s triangle trend lines and the key 75 and 80 levels.

Kiwi: NZD/USD: The NZD/USD chopped higher to start last week making gains at the expense of US$ weakness. It broke above both the key 0.73 and 0.74 levels and this move triggered a new TC LONG signal but price pulled back on Friday, with the shift to US$ strength, and this signal closed off.

Price action is still forming up within an ascending triangle pattern on the 4hr chart giving us trend lines to watch fro any momentum based breakout: up or down! The 4hr chart shows a recent support trend line that has been in force since the end of May, a period of about 3 ½ months. I’ll be watching this trend line for any make or break activity in coming sessions and note that a 61.8% fib pullback of this recent swing high move would bring price down to the previous S/R level of 0.70, so, this might be a target for any break of this trend line.

Remember: The 0.73 and 0.74 levels are long-term S/R and a look at the monthly chart shows the multiple highlighted regions where price has reacted at this region over the years. This remains the level to watch for any make or break activity in coming sessions. It should be remembered, however, that the monthly, weekly and daily charts still show a broader Bear Flag pattern brewing here.

The NZD/USD is trading above the 4hr, daily and weekly Clouds which remains bullish for the time being.

The weekly candle closed as a small bullish candle with a long upper shadow.

Traders need to watch out for impact from CNY Industrial Production data on Tuesday, NZD GDP on Thursday as well as all of the the USD data.

I’m watching for any new TC signal on this pair, the 4hr chart’s support trend line and the 0.73 level.

The Yen: USD/JPY: The USD/JPY pulled back from the 8-month bear trend line, like clockwork, and gave a 200 pip move down to the 61.8% fib region near 101.50, a move that I had warned about in last week’s analysis. Price subsequently bounced up from this 101.50 region but couldn’t break back above the 8-month bear trend line.

Price is now trading in the Cloud on the 4hr chart and below the Cloud on the daily chart.

In a post-script to last week: the USD/JPY and US$ index are still trading in tandem but I’m keeping an eye out for any developing divergence:

The weekly candle closed as a bearish candle.

I’m watching for any new TC signal on this pair, the 8-month bear trend line and the 100/101.50 region.

GBP/JPY: Price action retreated on this Yen pair last week too but not as much as I had thought it might. I was looking for a test of the key 134 level but it didn’t get down that far.

This choppy action, however, is giving us new trend lines on the daily and 4hr chart to watch for any momentum based breakout.

Price is trading in the Cloud on the 4hr chart and in the bottom of the Cloud on the daily chart.

The weekly candle closed as a bearish candle.

There is a lot of GBP data this week to monitor with CPI, PPI, RPI and HPI data on Tuesday, Employment data on Wednesday and then GBP Retail Sales and the BoE Interest Rate update on Thursday.

I’m watching for any new TC signal on this pair, the daily and 4hr chart’s triangle trend lines and the 143 level.

USD/CAD: The USD/CAD traded down from the 1.30 level last week but eventually bounced back up from the bottom trend line of the long-term wedge pattern, yet again. This wedge behaviour is becoming monotonous! US$ strength on Friday however resulted in this pair rallying to close the week back above the all important 1.30 level.

I’m still watching the wedge trend lines and the 1.30 region for any make or break activity. Note how there is the start of a triangle on the 4hr chart within this wedge pattern.

Price is now trading above the Cloud on the 4hr chart but in the Cloud on the daily.

The weekly candle closed as a small bullish candle with a long lower shadow.

NB: USD/CAD traders need to keep an eye on Oil though as any break above the key $50 level could help to support the CAD$ and keep pressure on the USD/CAD. Just FYI: I’m stalking a bullish-reversal ‘Inverse H&S on Oil with the ‘neck-line’ at $50.

I’m watching for any new TC signal, the wedge and triangle trend lines and 1.30 level.

Silver: Price action continues consolidating under the $21.50 level since bouncing back from circa $13 lows earlier this year. There was a bullish move last Monday that triggered a daily-chart LONG signal but I had suggested waiting for any break of the upper bear trend line. This breakout did not evolve though and the signal has now faded.

The daily chart shows a support trend line that has been in place since the start of the year and the 4hr charts shows another that has been in place since June and so these, in addition to the upper bear trend line, are giving us triangle trend lines to watch for any momentum-based breakout.

Silver is trading in the top edge of the 4hr Cloud and in the daily Cloud but it remains above the weekly Cloud.

The weekly candle closed as a small bullish candle with a long upper shadow.

I’m watching for any new TC signal, the daily & 4hr chart’s triangle trend lines and the $21.50 level.

Gold: Gold rallied last week due to the US$ weakness but didn’t make it up as far the major 5-year bear trend line that has been keeping price in check of late. Price action retreated mid-week and fell back to a recent 50% fib but I’m watching for any make or break of the lower 61.8% fib which is near the monthly pivot and $1,320 region.

The 4hr chart though shows how price has been chopping along sideways, pretty much, for the last 11 weeks. There is a horizontal channel bound by the major bear trend line above price action and with the bottom trend line forming up along the whole-number $1,300 level.

I’m keeping an eye on the following levels:

Any bullish break and hold above the 5-year bear trend line will have me looking for a test of the monthly chart’s 2011-2015 swing low 61.8% fib near $1,600.