US$: bad week at the office

The US$ had a bad week with bearish flow coming after FOMC, the BoJ meeting and then US GDP data. The index ended back down near a major S/R level but, whilst next week heralds the start of of a new month, a looming batch of US PMIs and NFP could make for another challenging week. One noteworthy, and rather ominous, technical feature for the US$ index is that it has failed in its attempt to break back above the weekly Cloud and with the EURX holding above its weekly Cloud this is all pointing towards a bias for ‘risk on‘ flow.

USDX

Monthly: The July candle has closed as a bearish coloured ‘Spinning Top’ candle with a long upper shadow. If this kind of candle had formed at the top of the trading range it would have formed a bearish-reversal ‘Shooting Star’. However, for the time being, 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 July candle closed well above the monthly Cloud.

USDXmonthlyCloud

Weekly: The weekly candle closed, essentially, as a large bearish ‘engulfing’, candle and right on the key S/R level of 95.50. Overall though, price action remains range-bound between 100 and 92.50 and it has been stuck within this channel for over 18 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: This is the most worrying chart for any US$ Bulls. Not only has the index closed back below the weekly Cloud BUT note how it failed in its attempt to break back above the weekly Cloud. That is rather bearish for the index.

USDXweeklyCloud

Daily:  price action was bearish each day of last week with the worst day being Friday.

USDXdaily

Daily Ichimoku Cloud chart: Price traded above the daily Cloud last week although this support base is looming large.

USDXdailyCloud

4hr: Price chopped sideways to start the week but then trended lower.

USDX4

4hr Ichimoku Cloud chart: Price chopped down through the 4hr Cloud to close the week below the Cloud. This chart is now divergent from the daily chart and suggests choppiness.

USDX4hrCloud

EURX

Monthly: The July candle closed as a bullish coloured ‘Spinning Top’ candle and well above the 94 level still giving the monthly chart a ‘Double Bottom’ appearance.

EURXmonthly

Monthly Ichimoku: The July candle closed below the Cloud. Note the Bollinger bands clamping down here.

EURXmonthlyCloud

Weekly: The weekly candle closed as a bullish, almost ‘engulfing’ candle but still within the weekly 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 has closed above the weekly Cloud. This is the third weekly candle close above the Cloud which is a bullish signal.

EURXweeklyCloud

Daily: Price chopped a bit higher last week but note the overall ‘sideways’ price action here.

EURXdaily

Daily Ichimoku Cloud chart: Price traded above the Cloud all of last week.

EURXdailyCloud

4 hr: Price chopped lower and then higher last week but, like with the daily chart, note the overall ‘sideways’ action here too. The 100 level seems a key level to keep an eye on next week for any make or break activity given recent US$ weakness:

EURX4

4 hr Ichimoku Cloud chart: Price chopped up through the Cloud last week and closed above this S/R zone. This chart is now divergent from the daily chart and suggests choppiness.

EURX4hrCloud

General:

  • Both indices continue to hold within long-term broad Flag patterns that have persisted for over 18 months.
  • The USDX and EURX indices are divergent across their 4hr and daily charts suggesting further choppiness and that caution is needed.
  • However, the USDX closed below the weekly Cloud and the EURX remains above the weekly Cloud which supports a bias towards ‘risk on’. 

USDX: The US$ closed lower last week and was hurt on a few fronts. Firstly, from a more cautious Fed with FOMC, then by disappointment with the BoJ stimulus package and, finally, from disappointing US GDP data. Price action ended the week sitting at a crucial S/R level near 95.50 which is the, almost, half way point in the recent trading range. Price action has successfully defended this S/R level all month but the end of month close back down at this key region is not encouraging news for any US$ Bulls. The US$ will have its work cut out for it as soon as the August gates open on Monday and there is NFP next Friday to battle through as well. One would have to suspect that the 95.50 level might ‘do or die’ on the results of this data.

Whilst the US$ index continues to hold near major 95.50 support I still consider it to be in no-man’s land whilst it trades above 92.50 and 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.
  • The psychological 100 level above current price. This is the top of the trading range.
  • The 92.50 level below current price. This is the bottom of the trading range.

EURX:  The EURX closed higher last week but I suspect this is more from Yin and Yang impact from the US$. Price action has been chopping along sideways and just under the whole-number 100 level so, IMHO, this is the region to watch next week.

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

The levels to watch on the EURX continue to be:

  • The 100 level!
  • The weekly chart trading channel trend lines: the upper trend line is just above the key 100 level.
  • 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 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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