A pivotal trading week ahead: Trade Week Analysis for 15/09/14 by Mary McNamara

Last week:Â There was one valid TC signal last week on the USD/CAD that gave up to 120 pips before reversing. A signal on the GBP/AUD wasn’t valid but moved to give over 450 pips. Some other big momentum moves weren’t valid due to candle sizes as well. All rather frustrating!

This week:

The USDX has been on a tear of late but has now stalled at major resistance and this is a pivotal level for the index in what might prove to be a pivotal week. The index has reached a ‘make or break’ point and traders will be looking to see if this week’s FOMC and Federal Funds rate news might be the catalyst to trigger such a move. A review of the USDX and EURX can be found through this link.

There is a lot of high impact data this week and traders need to pay attention to their trading calendars. Key items include US FOMC & Federal Funds rate news, the Swiss National Bank’s rate decision, the Scottish Referendum, BoE minutes and the Alibaba IPO. These news events are followed up by the NZ election next weekend. There is a lot of GBP sensitive data this week and I think it would be wise to avoid trading GBP pairs around the time of the Scottish Referendum vote and result.

A number of USD currency pairs are at key support or resistance levels ahead of this potential USD breakout move. FOMC and other news events this week might be sufficient to get the USD index to either break down or up from its current resistance zone and, in turn, get these currency pairs moving as well. These USD currency pairs include the:

  • Kiwi: trying to hold up near the 0.82 level and the monthly support trend line.
  • USD/CAD: testing a major bear trend line that has been in force since 2001.
  • Cable: trying to hold above the 1.60 level (50% fib of the major 2007-2009 bear move).
  • A/U: trying to hold above the 0.90 whole number support.
  • E/U: trying to scrape back to the 1.30 level (the 50% fib of the 2012-2014 bull move).
  • U/J: holding above the 105.5 level ( the 61.8% fib of the 2007-2012 bear move).

Chinese Industrial Production data was released over the w/e and this was weaker than expected. Watch at market open for any dampening effect on risk appetite caused by this news, especially on the A/U and Kiwi.

Events in the Ukraine and the Middle East continue to have the potential to undermine this technical analysis and need to be monitored.

Stocks and broader market sentiment:

The S&P500 index has closed below the key psychological level of 2,000. Added to this, the four main US stock indices, S&P500, DJIA, NASDAQ and Russell 2000 have all printed bearish weekly candles although they continue to hold above daily support trend lines. Continuing positive US data seems to have traders nervous about a more hawkish Fed announcement with FOMC this week and rising interest rates. I have read analysis suggesting that rising US interest rates might be the trigger for a major stock market pull back but I wonder whether, at some point, good news will be seen as good news and cause just the opposite!

However, I am also 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 at the 2000 region, 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, I am still being cautious here now even though the daily support of the S&P500 has not been broken. Anxiety about increasing US interest rates might just be the trigger to start a market sell off.Â

It is worth noting that a 61.8% fib pull back of the recent bull run (Nov 2012-present) would bring price down to near the 1,577 area. This remains significant as it is the breakout level of the previous highs from the 2000 and 2007 peaks. I would expect this region could be a target if there was any serious pullback on the S&P500.

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: I’m watching for any break of the daily trend line but price is holding above this for the time being. The index also continues to hold above the top trend line of the bullish ascending triangle (1,900).

S&Pdaily

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. However, there was a recent bullish Tenkan/Kijun cross on the index and it is still trading above the Cloud which is bullish. This latest bullish cross was deemed a ‘neutral’ signal though as it evolved within the Cloud.

S&PdailyCloud

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

S&Pmonthly

Russell 2000 Index: this small caps index is a bit of a US market ‘bellwether’ and I see the 1,100 level as key support here. The index continues to hold above this support for the time being:

RUTdaily

Trading Calendar Items to watch out for:

  • Sat 13th: CNY Industrial Production: produced a weaker than expected result.
  • Mon 15th: JPY Bank Holiday.
  • Tue 16th: AUD Monetary policy minutes. JPY BoJ Gov Kuroda speaks. GBP CPI. EUR German ZEW Economic Sentiment. CAD Manufacturing Sales. USD PPI. CAD Gov Poloz speaks.
  • Wed 17th: GBP Unemployment data & Bank Rate votes. USD Core CPI, FOMC, Federal Funds Rate & FOMC Press Conference.
  • Thurs 18th: NZD GDP. JPY BoJ Gov Kuroda speaks. CHF Monetary Policy Assessment. GBP Retail Sales. USD Building Permits, Unemployment Claims & Philly Fed Manufacturing Index. GBP Scottish Independence Vote. G20 meetings.
  • Fri 19th: G20 Meetings. CAD Core CPI & Wholesale Sales.
  • Sat 20th: NZD Elections. G20 Meetings.

Forex:

E/U: The E/U spent the week digesting last week’s ECB rate cut. In doing so it consolidated under the key 1.30 level and formed up into a bullish ‘inverse H&S’ pattern. I wrote a separate article about the E/U last Thursday and this can be found through the following link. I view the 1.30 level as the ‘neck line’ for this inverse H&S.

I am now expecting that we may see the broken 1.30 level tested before any potential bearish follow through given that this is a major whole number and psychological level and the 50% fib of the latest bull move. Support levels below current price remains as the:

  • monthly 200 EMA near 1.285. This level was tested and held during the lows of last week.
  • 8% fib level of this latest Bull Run near 1.28.

EUweeklyCloud

Some traders will be looking to short the E/U at the 1.30 level. The cautionary note here is that the USD index is struggling to break above major resistance. Any potential reversal with this index may actually help to boost the E/U and so traders need to watch this index as well.

Price is still trading below the Ichimoku Cloud on the 4hr, daily chart, weekly and monthly charts which is bearish although there has been a new bullish Tenkan/Kijun cross on the 4hr Cloud chart.

The weekly candle closed as a bullish coloured Doji candle and this is giving the weekly chart a bullish-reversal ‘Hammer’ appearance.

The Scottish Referendum result has the potential to make a huge impact on this pair as well. Traders need to be careful around this vote and result.

  • I’m watching for any new TC signal and the 1.30 level.  Â

EUmonthly EUweekly EUdaily EU4

E/J: I had suggested last week that traders watch for a reaction on the E/J at the 136 level. Well, it bounced up off this 136 support for 300 pips and eventually made a bullish break up and out from the daily chart’s descending triangle pattern. This triangle breakout alone gave a move of 100 pips. Â

This daily triangle was set within a larger triangle on the weekly chart. The daily chart perspective shows that the bear trend line of this larger triangle pattern intersects with the whole number 140 level. Any break of this 140 region may offer traders, who missed the earlier triangle break, an opportunity to catch any potential bullish continuation action.

Price is now trading above the Cloud on the 4hr, daily chart, and monthly chart and at the top of the Cloud on the weekly chart and this represents a bullish shift. The November and December candles were the first to close above the resistance of the monthly Ichimoku Cloud since 2008.

The weekly candle closed as a bullish engulfing candle.

The weekly and monthly charts still have a ‘Bull Flag’ look to them.

  • I’m watching for any new TC signal on this pair and the 140 level.

EJmonthly EJweekly EJdaily EJ4

A/U: Â The A/U had a bearish week despite some better than AUD expected data. I noted last week about how the Aussie was setting up within a descending triangle on the daily chart. Price actually broke down from this pattern on Tuesday and has delivered up to 180 pips of a suggested 280 pip move. Â

Descending triangle pattern: The height of the triangle was about 280 pips. Thus, the expected follow through move below the 0.9225 trend line is of 280 pips as well. This gives a target near the 0.895 level. The A/U has already delivered 180 of this 280 pip move.

It is worth noting that the A/U has a developing bullish ‘inverse H&S’ pattern forming on the weekly chart.

Price is trading below the Cloud on the 4hr chart, daily and weekly charts and in the middle of the Cloud on the monthly chart. This is a major bearish shift here.

The weekly candle closed as a large bearish, almost engulfing, candle. It also closed well outside the Bollinger band so look for a bounce or a pause in price action next week.

NB: The weekend’s weaker than expected Chinese data might dampen appetite for this pair and help it to reach the 0.895 target.

  • I’m watching for any new TC signal on this pair and the triangle breakdown move with the target of 0.895.  Â

AUmonthly AUweekly AUdaily AU4Â Â

A/J: The A/J spent the week consolidating above the key 96 S/R level and, in doing so, formed up into a symmetrical triangle pattern. Price broke down and out from this triangle on Thursday but didn’t trigger a clean TC ‘short’ signal.

I still would not be surprised to this key 96 level tested again, even if there is to be long term bullish continuation. Applying fib levels on the 4hr chart to the recent bull move shows that the 96 level falls right between the 50% and 61.8% fib levels and, thus, is added confluence for the A/J to target this level for any possible pull back.

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

The weekly candle closed as a bearish candle.Â

NB: The weekend’s weaker than expected Chinese data might dampen appetite for this pair and help it to reach the 96 target.

  • I’m watching for any new TC signal on this pair and the 96 level.

AJmonthly AJweekly AJdaily AJ4

G/U: The Cable gapped lower at market open last week following w/e reports about the Scottish Referendum. Price tried to fill the gap and almost achieved this by Friday’s close. The Scottish Independence vote is not until next Thursday and, thus, we may see this choppiness continue until this vote is decided. A YES result is predicted to send the Cable lower and a NO vote higher. I advise traders to avoid this pair, and any GBP pair, around the time of the Referendum vote and result.

Possible bearish targets below current price still include:

  • The weekly 200 EMA, just below the 38.2 % fib of the recent bull move (near 1.62).
  • The monthly chart’s previously broken trend line (near 1.60). This is also the 50% fib of the recent bull move. This level was tested during last week. I had previously stated that it seemed entirely reasonable that the Cable would pull back to at least test this broken triangle trend line as it had been in effect for the best part of 5 years and, thus, was very significant and worthy of testing. This is exactly what we saw last week.

Bullish targets for any return back above the monthly 200 EMA: This level remains a key level to watch here and any new move back above this level would be quite bullish. It is important to remember that February was the first monthly close above this S/R level since September 2008 and, also, the highest monthly close since the bear move of 2007-2009. These were major achievements. A possible target for any continued bullish movement is best determined from the monthly chart. The 50 % fib level of the 2007-2009 bear move is up at around the 1.73 region and the 61.8 % fib is at the 1.82 region. Both of these levels might be possible profit targets. The 61.8% fib level is now almost 2,000 pips away.Â

Price is trading below the Cloud on the 4hr and daily charts and in the Cloud on the weekly and monthly charts. There was a new bullish Tenkan/Kijun cross on the 4hr chart on Friday though.

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

  • I’m watching for any new TC signal on this pair and the Scottish Referendum results.

GUmonthly GUweekly GUdaily GU4

GBP/JPY: The GBP/JPY gapped lower to start the week due to the Scottish Referendum news but it went on to fill this gap. It then did a Forrest gum and ‘kept on runnin’ and was no doubt helped by the bullish moves on the U/J. Â

The bearish ascending wedge pattern on the weekly chart is still apparent but with a slightly adjusted lower trend line. This is still giving the weekly and monthly charts a ‘Bull Flag’ appearance and the close back above 173 is rather bullish. I would suggest to wait to trade this pair until after the Scottish Independence vote though as this news might trump any technical analysis. Any pull back to test 173 would offer a technical entry point to go long but, if price does not pull back, then a bullish break and hold above the wedge trend line would offer the next best entry.

Price is now trading above the Ichimoku Cloud on the 4hr, daily, weekly and monthly charts which is a significant bullish shift.

The weekly candle closed as a bullish engulfing candle.

I advise traders to avoid this pair, and any GBP pair, around the time of the Referendum vote and result.

  • I’m watching for any new TC signal on this pair, the 173 level and the wedge trend lines.

GJmonthly GJweekly GJdaily GJ4hr

Kiwi: NZD/USD: The Kiwi continued lower last week and broke below the key 0.82 level and the monthly support trend line following comments from the RBNZ Governor.  This breakdown below key support would suggest bearish continuation but we may continue to see choppy action until after the following weekend’s NZ Parliamentary Election. I wrote a separate article about the Kiwi last Thursday and this can be found through the following link.

Price is now trading below the Ichimoku Cloud on the 4hr, daily and weekly charts but above on the monthly chart. This is a bearish shift here though.

The weekly candle closed as a large bearish candle.

NB: The weekend’s weaker than expected Chinese data might dampen appetite for this pair and make it harder for this pair to reclaim the 0.82 level.

  • I’m watching for any new TC signal on this pair, the 0.82 level and the monthly support trend line.

KiwiMonthly KiwiWeekly KiwiDaily Kiwi4

EUR/AUD: I had mentioned last week that despite seeming to break below the recent trading channel that I would want to see a close and hold below the 1.381 level before being tempted to take any technical short on the EUR/AUD. Well, the EUR/AUD bounced right up off this exact level and then ran for 530 pips and right up to the opposite side of the trading channel! Friday’s continued rally here has now resulted in a bullish trading channel breakout!

This bullish move ties back in with the possible H&S I thought might be building on the weekly chart.

The E/A is now trading above the Cloud on the 4hr chart but just below on the daily chart.

The weekly candle closed as a large bullish, almost engulfing, candle.

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

EAmonthly EAweekly EAdaily EA4

The Yen: U/J: The U/J had another bullish week and added up to 190 pips to the weekly chart’s bullish triangle breakout move. This technical move has now delivered up to 440 pips. The weekly chart shows this triangle breakout to be almost a prefect parabolic move. I don’t consider this activity is sustainable over the longer term and still believe that the 61.8% fib level of the 2007-2012 bear move, down at 105.5, could be tested again, even if there is to be bullish continuation. The 61.8% fib of any move is a major technical level and, as such, this level might be tested. Watch for any reaction and/or pull back here with FOMC.

Price is still trading above the Cloud on the 4hr, daily, weekly and monthly charts which is bullish though so any pull back might be brief. November 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 large bullish candle.

Weekly Chart Bullish Cup’ n’ Handle pattern: I am still seeing this pattern building on the weekly chart and the recent weekly chart triangle breakout supports the continued development of this pattern. 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. Possible targets along the way include the 61.8% fib retrace level at the 105.5 region and the 78.6% fib up near the 112 region.

  • I’m watching for any new TC signal and the 105.5 level.

UJmonthly UJweekly UJdaily UJ4

AUD/NZD: Price chopped lower last week due to AUD weakness and, although it slipped back below the 1.12 level, it held above the 1.105 support. I wrote an article about this pair during the week where I noted that this choppiness might continue until after next week’s NZ elections.

Bullish ascending triangle move: The AUD/NZD made a bullish ascending triangle breakout when it closed and held above the 1.105 level. The height of this triangle was about 560 pips. Thus, technical theory would extrapolate this order of magnitude up from the 1.105 level to determine the possible bullish target for this move. 560 pips above the 1.105 level is at about 1.16, and a whole number value and previous S/R on this pair.Â

The AUD/NZD is now trading below the Cloud on the 4hr chart but above on the daily chart which suggests choppiness.

The weekly candle closed as a bearish engulfing candle.

  • I’m watching for any new TC signal and the 1.105 level.

ANmonthly ANweekly ANdaily AN4

GBP/AUD: This pair gapped lower on market open due to GBP weakness triggered by Scottish Referendum jitters. Price soon bounced back though and there wasn’t actually a 4hr candle close below the recent trading channel trend lines. This recovery triggered a TC signal but it wasn’t valid and more pity this though as the signal went on to deliver over 450 pips. In much the same way as for the EUR/AUD, this pair bounced up off the lower trading channel trend line and then rallied for over 600 pips! The GBP/AUD continues to trade within this trading channel but is edging up closer to the top trend line of this channel. The Scottish Referendum result might dictate whether this pair breaks or retreats from this resistance level.

Price is now trading above the Ichimoku Cloud on the 4hr chart but below on the daily chart suggesting some choppiness.

The weekly candle closed as a large bullish engulfing candle.

I advise traders to avoid this pair, and any GBP pair, around the time of the Referendum vote and result.

  • I’m watching for any new TC signal, the trading channel trend lines and the Scottish Referendum result.    Â

GAmonthly GAweekly GAdaily GA4Â Â Â Â

USD/CAD: The USD/CAD finally managed to close above the key 1.10 resistance level last week. A new TC signal was triggered as part of this bullish shift and this delivered up to 120 pips before closing off.

This pair is edging closer towards the apex of a major monthly chart triangle pattern that could deliver up to 2,500 pips in any breakout move.

Triangle breakout target: There is a 2,500 pip triangle breakout move brewing on the monthly chart. 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 61.8% fibs levels are popular targets in retracement moves and so this adds some confluence to level this as a possible target. The bear trend line of the triangle pattern is now just above current price BUT has been in play since 2001 and so may offer considerable resistance to any potential bullish continuation.

FOMC is one news item that might dictate whether this pair breaks or retreats from this key resistance trend line level. I would not be surprised to see the key 1.10 level tested before any potential bullish continuation.

Another issue for this commodity-based pair is the slump with Oil prices. The monthly chart of Crude Oil shows the commodity to be sitting above two levels of support within a symmetrical triangle pattern. A breakdown here would put strain on the Loonie and help to lift the USD/CAD. Conversely, a bounce back up from these support levels might get the USD/CAD retreating from these highs. Traders of this pair need to keep an eye on Oil. (NB: click on the charts below to enlarge them)

CL: Light Crude Oil: two support trend lines below current price:

CLmonthly

USO: US Oil ETF: sitting above major support:

USOweekly

Price is now trading above the Cloud on the 4hr and daily charts which is bullish.

The weekly candle closed as a large bullish candle.

  • I’m watching for any new TC signal, the 1.10 level and the monthly chart’s triangle pattern.

LoonieMonthly LoonieWeekly LoonieDaily Loonie4hr

GBP/CHF: The GBP/CHF gapped lower on market open with the GBP weakness. It recovered off these lows though and rallied for much of the rest of the week until it ran into resistance from the trading channel’s upper trend line. The daily chart shows how price action is now consolidating within a Flag pattern under the key 1.55 resistance level and is giving the chart a ‘Bull Flag’ appearance.

The GBP/CHF is now trading just above the 4hr Cloud but just below the daily Cloud and suggests further choppiness.

The weekly candle closed as a bullish candle.

I advise traders to avoid this pair, and any GBP pair, around the time of the Referendum vote and result.

  • I’m watching for any new TC signal, the triangle trend lines, the 1.55 level, SNB interest rate news and the Scottish Referendum result.

GBPCHFmonthly GBPCHFweekly GBPCHFdaily GBPCHF4hr

Silver: Silver continued chopping lower last week with ongoing USD strength. It is still trading within the daily chart’s descending trading channel but is now below $19 support.

The weekly chart shows recent price action forming up into a bit of a triangle pattern that I’ll be keeping an eye on.

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

The weekly candle closed as a bearish candle. I’d be wary shorting here though as the USD index faces key resistance and any respect of this may help to support Silver.

  • I’m watching for any new TC signal, the trading channel trend lines and the $19 level.

SilverMonthly SilverWeekly SilverDaily Silver4hr

Gold: Like Silver, Gold kept chopping lower last week due to increasing USD strength. The metal broke down from daily chart’s symmetrical triangle pattern last Monday and continued lower from there. The $1,240 level was noted as recent support but price broke below this level as well.

The bearish action last week seems to have finally trumped my possible bullish ‘inverse H&S pattern’.

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

The weekly candle closed as a bearish candle. I’d be wary shorting here though as the USD index faces key resistance and any respect of this may help to support Gold.

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

GoldMonthly GoldWeekly GoldDaily Gold4hr

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