US$ catches a bid after upbeat US CPI data

The US$ caught a bid on Friday after upbeat US CPI data and this has clearly brought on thoughts about the potential for the next US rate hike as early as next week’s FOMC. On Friday the US$ index broke back above the 95.50 level and out of a 3-month symmetrical triangle pattern but the big test for FOMC will be whether the index can crack the 100 level. The EUR$ is not down and out though as, even though it closed the week slightly lower, it still managed to close above the 4hr and daily Cloud. Interesting times indeed!

USDX

Monthly: The September candle is printing a bullish coloured Doji candle. The monthly chart also 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 September candle is trading well above the monthly Cloud. Note that momentum continues to decline.

usdxmonthlycloud

Weekly: The weekly candle closed as a bullish, essentially ‘Engulfing’ candle and has reclaimed the psychological 95.50 level but this level might be in focus again next week with FOMC. Overall though, price action remains range-bound between 100 and 92.50 and ­has been stuck within this channel for over 20 months. Note that 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 also 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: The weekly candle remains below the weekly Cloud.

usdxweeklycloud

Daily:  candle sizes were pretty small until Friday when upbeat US CPI data boosted the US$ resulting in a large candle and triggering a triangle breakout.

usdxdaily

Daily Ichimoku Cloud chart: Price traded in the bottom of the daily Cloud for most of last week but Friday’s bullish action lifted it out of the Cloud.

usdxdailycloud

4hr: Price chopped along sideways last week either side of the 95.50 level until Friday’s US CPI data was released.  This good news lifted the US$ above the 95.50 and up and out of the triangle.

usdx4

4hr Ichimoku Cloud chart: Price chopped in and out of the 4hr Cloud last week but closed the week well above the Cloud. The US$ is now above the Cloud on the 4hr and daily time frame suggesting LONG US$.

usdx4hrcloud

EURX

Monthly: The September candle is trading as a bullish coloured ‘Doji’ candle but well above the 94 level supporting the monthly chart’s ‘Double Bottom’.

eurxmonthly

Monthly Ichimoku: The September candle is still trading below the Cloud but note the continued lack of momentum.

eurxmonthlycloud

Weekly: The weekly candle closed as a bearish coloured ‘Spinning Top’ candle but still within the weekly chart’s 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 continues to hold above thin weekly Cloud but note how the Cloud has flipped to being bullish coloured. This is the tenth full weekly-candle to clear the weekly Cloud which continues to be a bullish signal.

eurxweeklycloud

Daily: Price chopped down to test the key 100 level last week but bounced back up from this resistance-turned-support. There were quite a few long shadows on the daily candles last week reflecting ‘indecision’ here. The 100 level remains the one to watch in coming sessions and especially with next week’s FOMC. There are new triangle trend lines to watch here for any momentum-based breakout too. 

eurxdaily

Daily Ichimoku Cloud chart: Price held above the Cloud last week.

eurxdailycloud

4 hr: Price held above the 100 last week but, with renewed bullish US$ sentiment, this S/R level remains the one to watch next week for any make or break activity. The second of the 4hr charts below show the new triangle trend lines to watch here for any momentum-based breakout.

eurx4

eurx4

4 hr Ichimoku Cloud chart: Price chopped down into the Cloud last week but pulled back up midweek only to revisit this zone on Friday with bullish US$ sentiment. However, price action finished the week above the Cloud. Strangely, despite recent US$ strength, the EUR$ is  above the Cloud on the 4hr and daily time frames suggesting LONG EUR$.

eurx4hrcloud

General:

  • Both indices continue to hold within long-term broad Flag patterns that have persisted for over 20 months.
  • The US$ index is aligned on the 4hr and daily chart time frame for LONG US$ and the EUR$ is also aligned for LONG EUR$. This alignment, rather peculiarly though, is a form of divergence! 

USDX: The US$ closed higher last week thanks to Friday’s upbeat US CPI data which seems to have renewed thoughts of a potential rate hike at next week’s FOMC meeting. Price action broke up through 95.50 resistance and out from a triangle pattern that had constrained price action for the last 3 months.

Despite these continued gyrations around the 95.50 level, I still consider the US$ to be in no-man’s land though whilst it trades above 92.50 but 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 over 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 longer-term trading range.
  • The 92.50 level below current price. This is the bottom of the longer-term trading range.

EURX:  The EURX closed only slightly lower last week which is rather surprising given the amount of US$ strength that came though on Friday. One could be forgiven for thinking this index might have closed markedly lower!  Price dipped down to test the key 100 level earlier in the week but bounced back up from here confirming this as new support and this level held through Friday’s US$ rally as well. The 100 level remains the one to watch for any make or break activity though especially with next week’s FOMC.

Traders need to remember that there is policy divergence between Europe and the US with the Eurozone trading within a monetary easing cycle and the US trying to emerge from one and next week’s FOMC has the potential to bring this policy divergence right back into focus for the EUR$. For the time being, though, both FX Indices remain trading within long-term trading channels and so I continue to wait for any decisive breakout from these resistance zones.

There isn’t much EUR$ ‘high impact’ data next week other than an ECB President Draghi speech on Thursday. There is, however, a lot of second-tier EUR PMI data on Friday that could shake things up a bit and, of course, the US FOMC outcome will impact here too.

The levels to watch on the EURX continue to be:

  • The 100 level; which is now support under current price.
  • The weekly chart trading channel trend lines.
  • 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 weekly chart’s 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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