Last minute flurry of activity before a big FX event? by Mary McNamara

Last week: Last week was a rather busy one for TC with 7 new valid signals and a few others as well. With the USD approaching a major resistance level and the E/U heading for major support this behaviour reminds me of the last minute flurry of activity often seen before any ‘major’ event. Now, whether this ‘major’ event turns out to be a USDX breakout above 90 or a retreat from this major resistance remains to be seen BUT, it sure looks to be setting up for an interesting 2015!

Last weeks pips tally: The A/J from the previous week continued on to give 480 pips before closing off. There were large spike moves on new TC signals that triggered prior to FOMC: E/J for 140, U/J for 200 and the GBP/JPY for 250 pips. There were a few signals triggered after FOMC that came with caution due to some large candle formations: E/U= 110 (open), GBP/USD = -100 (closed), Swissie = 100 (open) and Kiwi = -50 (closed). The pip tally from the 7 valid signals this week was 650 pips.

This week:

The USD index rallied after FOMC but has yet to break above major 90 level resistance. I had pondered last week whether FOMC might trigger a definitive move on the USD index, either higher or lower, and the result seems to be higher for now but the 90 level will be a real test for the index. Next week’s US GDP might be just the data to get the index reacting at this 90 barrier though:

USDX: what will this do at 90?

DXYweekly

The USD move towards major resistance dovetails with some US-based FX pairs approaching significant ‘make or break’ levels of their own. The result of the USD reaction at 90 might dictate how these pairs react at these levels and this is why I think 2015 might offer some very interesting FX trading:  

  • 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 near 0.82 but looks to be headed to test major 0.80 S/R.
  • NZD/USD: poised just above 0.77 but a bearish break could trigger a 1,000+ pip Bear Flag move.

This week is a shorter trading week with Christmas Day falling on Thursday. I wish everyone a safe and peaceful Christmas and a Happy New Year.

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

I am not able to add any further ‘Pages’ on my blog summarising my Stock and Option trading as I’m having technical issues with my website.

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 started the week poorly with the continuing rout on Oil but rallied after FOMC and the S&P500 ended up printing the biggest weekly gain in two years. The DJIA, NASDAQ and Russell 2000 all printed bullish weekly candles as well. In fact, the Bull Flag breakout on the Russell 2000 index is really starting to take shape and the NASDAQ is still knocking on the door at 4,800!

Stocks are looking as if they will remain bullish but many traders are expressing concern about the lofty highs at which US Indices are trading. It is worth noting that the current P/E ratio for the S&P500 index is near 20 and, thus, not reflecting a highly overvalued market:

S&P500PE

I am still seeing divergence on the monthly S&P500 monthly chart though 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 back testing recent highs after having its best week in two years:

S&Pdaily

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. There has been a new bullish Tenkan/Kijun cross above the Cloud on the weekly chart which is classed a ‘strong’ signal. The lines are still fused on the daily chart 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’ and I see the 1,080 level as key support here. The index continues to hold up and out from a ‘Bull Flag’ breakout for the time being and the $1,220 is the level to watch in coming sessions:

RUTweekly

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

VIXweekly

Bonds: The bond ETF remains above the triangle breakout but appears a tad conflicted given the print of a ‘Spinning Top’ weekly candle, albeit a bullish coloured one. The bullish breakout from the Cup ‘n’ Handle pattern has held though:

TLTweekly

Oil: The slide in Oil (no pun intended) slowed this week and there was actually a bullish-reversal ‘Hammer’ candle printed which supports the Elliott Wave analysis:

CLweekly

Trading Calendar Items to watch out for:

  • Mon 22nd: nil
  • Tue 23rd: NZD Trade Balance. JPY Bank Holiday. GBP Current Account. CAD GDP. USD Core Durable Goods, GDP & New Home Sales.
  • Wed 24th: EUR German Bank Holiday. US Unemployment Claims.
  • Thurs 25th: Christmas Day. JPY BoJ Gov Kuroda speaks.
  • Fri 26th: Boxing Day

Forex:

E/U: The E/U chopped higher to start the week and managed a daily candle close up and out of the 7 month trading channel and back above the 1.25 level. This was short lived though as USD strength with FOMC brought this pair back down to within the trading channel and triggered a new TC signal that has delivered up to 110 pips. Price ended the week down near the bottom of this channel and below the previous weeks low.

It is worth remembering that this daily chart’s descending trading channel is set within a bearish descending triangle on the larger-scale monthly chart. The E/U is now only about 140 pips above a monthly chart triangle support trend line and just over 400 pips above the monthly chart’s descending triangle trend line. These two support levels will be in focus in coming sessions to determine whether they are able to stem the bearish flow here.

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! 

The USD index will be in focus here as the E/U trades down near these major support levels. A bullish USDX breakout above 90 could trigger bearish continuation on the E/U well below these key support levels. Conversely, a USDX respect of 90 and pull back from there could enable some E/U recovery. Interesting times here indeed!

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

The weekly candle closed as a large ‘bearish engulfing’ candle.

  • There is an open TC signal on this pair.  

EUmonthly EUweekly EUdaily EU4

E/J: The E/J started the week trading within an ascending trading channel but soon broke down from this and triggered a new TC signal that spiked to give 140 pips. Price chopped around again after FOMC and formed up into a symmetrical triangle pattern. It clearly needs some time to think about what it is going to do next.

There 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 below the Cloud on the 4hr but above on the daily, weekly and monthly charts.

The weekly candle closed as a bearish candle following last week’s bearish-reversal ‘Hanging Man’ appearance.

  • 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 around above 0.82 to start the week but soon fell below this support with the strengthening USD. It is trading below 0.82, below a bear trend line and also below the support of the 50% fib of the 2008-2011 bull run and the bottom of the monthly Ichimoku Cloud.:

AUmonthlyCloud

Bear Flag? The Bear Flag is looking very messy but the 0.865, monthly 50% fib and bottom of the monthly Cloud remains as key support levels to watch. The break and hold below these three support levels would suggest the Bear Flag is underway. The ‘Flag Pole’ for any A/U Bear Flag has a height of about 630 pips. Thus, the expected move for any bearish breakdown is expected to be of about 630 pips as well. This projects a bearish target down near the 0.80 level. This is significant as this is also the 61.8% pull back for the 2008-2011 bull run. This move has already delivered over 500 pips from the Bear Flag.

The monthly chart shows that the A/U is not that far now from the 80 region and 61.8% fib support. One has to wonder where the A/U will end up if the USD embarks on a bullish breakout above 90? The next major support to me looks to be down at 0.70 near the 78.6% fib!  

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

The weekly candle closed as a bearish candle.

  • I’m watching for any new TC signal on this pair and the 0.82/0.80 levels.

AUmonthly AUweekly AUdaily AU4

A/J: The A/J continued lower last week and the TC signal eventually closed off after delivering up to 480 pips. I had suggested price might react, and or reverse, at the 96 level and that is what we have seen. The bounce up off 96 triggered a new TC signal but this isn’t valid yet as price is still below the 4hr Cloud.

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

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

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

AJmonthly AJweekly AJdaily AJ4

G/U: The Cable made a move early in the week back above the 61.8% fib level of the 2013-2014 bull run and the bear trend line of the descending wedge pattern. This was short lived though. I had said to watch this intersection for reaction with FOMC and we sure got some: a 150 pip drop! This huge move triggered a new TC signal but I suggested caution ahead of GBP Retail Sales data scheduled for the next day and the upbeat data print there enabled the Cable to bounce from these lows.

This bearish hold below the 61.8% fib however would suggest 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 break on the USDX above 90 would help to bring about this bearish move.

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

The weekly candle closed as a large bearish, almost ‘inside’ candle.

  • I’m watching for any new TC signal on this pair and the 1.53 region.

GUmonthly GUweekly GUdaily GU4

GBP/JPY: The GBP/JPY started the week trading within a triangle pattern but it soon broke down and triggered a new TC signal that spiked to give up to 250 pips. Price recovered after that drop and this activity formed up into a new symmetrical triangle on the 4hr chart. Price broke out of this new triangle though in a bullish move that delivered over 150 pips. This breakout also triggered a new TC signal but this isn’t valid just yet as price is still below the 4hr Cloud.

Two key S/R levels on the G/J chart: The monthly chart shows a band of choppy congested activity across the chart. This band is defined by rather strong S/R levels at 179 and 167. The 179 level seems to be a key demarcation level and a close and hold above this would suggest bullish continuation. The key 173 level lies midway between these two S/R levels. Targets for any bullish continuation include the the 61.8% fib near 200 and the 78.6% fib near 222.

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

The weekly candle closed as a bullish coloured ‘Doji’ candle.

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

GJmonthly GJweekly GJdaily GJ4hr

Kiwi: NZD/USD:  The Kiwi chopped up to test a recent bear trend line but couldn’t manage to close above this resistance. Price soon retreated and, with FOMC inspired USD strength, it fell to test the 0.77 level again despite some upbeat NZD GDP released straight after FOMC. Price managed to bounce up off the 0.77 level though and this triggered a new TC signal on Friday but this failed with USD strength developing into the weekly close. It still remains trading in a narrow range above 0.77 but below a recent bear trend line.

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 in the Ichimoku Cloud on the 4hr 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 small, bearish ‘Spinning Top’ style of candle with, yet again, long upper and lower shadows.

There is NZD Trade Balance data on Tuesday which may get this pair moving out of its current narrow range. Otherwise, US GDP might do the trick. However, all the positive NZD data the country could muster might not help the Kiwi if the USD breaks and holds above 90.

  • I’m watching for any new TC signal on this pair and the 0.77 and 0.80 levels.

KiwiMonthly KiwiWeekly KiwiDaily Kiwi4

The Yen: U/J: The U/J broke down earlier in the week from its 4hr chart symmetrical triangle. This move triggered a new TC signal as well and this spiked to give 200 pips.

FOMC then inspired some USD strength and this helped to lift this pair back up which resulted in yet another symmetrical triangle forming up on the 4hr chart. Price then made a bullish triangle breakout and triggered a new TC ‘long’ signal but this signal wasn’t valid as price was below the 4hr Cloud.

Price is now trading near the top of the Cloud on the 4hr chart but above on the daily, weekly and monthly charts. 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 with a long lower shadow.

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 valid TC signal.

UJmonthly UJweekly UJdaily UJ4

USD/CAD: The USD/CAD chopped around above the support of the monthly 200 EMA S/R zone last week. I had suggested that this S/R level may offer traders another entry point into this trade and price rallied up to 80 pips following a dip-test of this EMA. This choppy action above the monthly 200 EMA support has formed up into a new triangle pattern on the 4hr chart. 

The monthly candle has yet to close but it is currently trading above this monthly 200 EMA, as discussed above. It is worth noting that the last bullish monthly candle close was back in February 2009, almost 6 years ago, and so if this evolves it will be a significant achievement.

Triangle breakout target:  The Loonie has broken up and out from a major monthly chart triangle pattern that could deliver up to 2,500 pips. It has already delivered 500+ pips in this move. The 2,500 pip target 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 although there has been a recent bearish Tenkan/Kijun cross on the 4hr chart.

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 monthly 200 EMA and the 4hr chart’s triangle trend lines.

LoonieMonthly LoonieWeekly LoonieDaily Loonie4hr

EUR/GBP: This pair has again bounced off the upper trend line of the daily/weekly chart’s descending trading channel. It fell down to finish the week just above a major support level offered by the monthly 200 EMA and the 61.8% fib of the 2007-2009 bull run. The 0.77 level is major support below this current level and forms the bottom of a monthly chart descending triangle. The weekly chart’s descending trading channel is set within this monthly chart descending triangle.

The E/G is trading below the Cloud on the 4hr, daily, weekly and monthly charts which is bearish.

The weekly candle closed a large bearish engulfing candle.

  • I’m watching for any new TC signal and the 0.77 level.

EGmonthly EGweekly EGdaily EG4hr

USD/CHF: The Swissie continued to chop around within the ‘Handle’ of the weekly chart’s bullish Cup ‘n’ Handle pattern for most of last week. USD weakness at the start of last week saw price continue below the bottom trend line of this pattern and so this trend line was adjusted to reflect this new support range.

Bullish Cup ‘n’ Handle? There looks to be a bullish Cup ‘n’ Handle pattern of sorts brewing on the USD/CHF. The ‘Cup’ height is about 1,000 pips and this suggests that any bullish breakout would also extend by about 1,000 pips. Price is currently sitting right at the top edge of the ‘Handle’ pattern. Any bullish USDX breakout above 90 would help to develop this bullish pattern.

Cup'n'Handle

Last week’s FOMC helped to lift the USD and this resulted in a rally for this pair with a new TC signal being triggered that has delivered up to 100 pips. Price finished the week sitting right on the trend line of the weekly chart’s Cup ‘n’ Handle pattern. I noted back at the beginning of December how the 0.975 level was an important S/R level for the Swissie and I see that UBS are suggesting to go long from here! This may be a decent order to place in case of any pull back.

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 ‘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 large bullish engulfing candle.

  • There is an open TC signal on this pair but I’m watching the ‘Handle’ trend lines as well.

SwissieMonthly Swissieweekly Swissiedaily Swissie4hr

Silver: Silver had been trading, pretty much, within a horizontal trading channel in the previous week. Price broke down from this channel on Monday and fell over 140 pips ($1.40) but eventually found support from the monthly pivot though.

I am surprised this has held up as well as it has given the continued US$ strength. Whilst Silver looks to have formed a weekly-chart bullish ‘Double Bottom’ for now any bullish breakout on the USDX above 90 might put further pressure back on Silver. Any bearish breakdown below $15 for Silver would suggest price might target the 100% fib retracement down near $9.

Silver is now trading below the Ichimoku Cloud on the 4hr, daily (only just), weekly and monthly charts.

The weekly candle closed as a bearish, almost engulfing, candle.

  • I’m watching for any new TC signal and the $15 level.

SilverMonthly SilverWeekly SilverDaily Silver4hr

Gold: I had noted last week how Gold was trading within a triangle pattern on the 4hr chart. The metal broke down from this triangle on Monday and gave a 320 pips move ($32) before finding some support from the $1,180 S/R level. As for Silver, I am surprised this has held up as well as it has given the increasing USD strength.

The weekly chart of Gold still shows that the metal seems to have formed a bullish ‘Double Bottom’ off major $1,145 support. However, any break and hold below $1,180 would suggest that this bullish pattern could come under threat and that a test of $1,145 might get underway. A bullish breakout on the USDX above 90 might put more pressure on Gold and any bearish breakdown below $1,145 would suggest price might target the $1,000 level and, then, possibly the 78.6% fib near $950.

Gold is trading below the Ichimoku Cloud on the 4hr chart, in the Cloud on the daily chart but below the Cloud on the weekly and monthly charts.

The weekly candle closed as a bearish coloured ‘inside’ candle.

  • I’m watching for any new TC signal on this pair, the 61.8% fib near $1,145 level and the $1,180 level.

GoldMonthly GoldWeekly GoldDaily Gold4hr

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