US Fed: a case of ‘be careful what you wish for’?

Last week:  The bullish US$ shaped most of the FX market movement last week and traders will be watching to see if this becomes the ‘new normal’ following on from seven months of range-bound US$ activity. Friday’s NFP was better than expected and the upbeat wages and jobs data will make it harder for the Federal Reserve to delay any US rate hike. This may well prove to be a case of ‘be careful for what you wish for’ though given the easing bias favoured by many other Central Banks. The terms ‘rock’ and ‘hard place’ come to mind here! This NewYorker article, touches a bit on the same topic and is worth a quick read.

Be careful what you wish for

There were five new TC signals last week that gave the following pip gain before closing off: E/U = 120, NZD/USD = 100, GBP/JPY = -100, GBP/NZD = 200 and the EUR/AUD = 150.

This week:

The US$ index has made a bullish breakout following recent hawkish US Fed commentary and the upbeat NFP, however, some heavy lifting lies ahead with the key 100 level still in its path. Whilst recent action has certainly been bullish this 100 level might define whether this action continues. A review of the FX indices can be found through this link.

EUR/USD: recent US$ strength has put pressure on the E/U and a potential 3,500 pip Bear Flag move might be building momentum. 

GBP/USD:  there has been a bearish breakdown from a six-week triangle pattern and any failure of 1.50 support might deliver many more pips.

Gold & Silver: both have been punished by the stronger US$ and are down near key support levels. Any break and hold above 100 for the US$ index would put further pressure on these two metals, as well as other commodities.

Sunday, Tuesday and Wednesday bring high impact CNY data and these are worth watching for any impact they might have of the AUD and NZD pairs. The A/U traded lower with the stronger US$ but has held up pretty well considering and any upbeat CNY data might help to keep the AUD supported.

Kiwi: the NZD/USD had a bearish week but, call me crazy if you like, I’m seeing the look of a possible basing pattern on the weekly chart.

Stocks and broader market sentiment:

US stocks closed higher for the week with the bellwether Russell 2000 printing a good sized bullish candle. This is significant given the increased rhetoric of a possible US interest rate hike in December as the reaction of stocks to any rate hike is yet to be gauged.  Recall, though, that the NASDAQ, DJIA, Russell 2000 and S&P500 all printed, essentially, bullish ‘engulfing’ monthly candles for October!

Business Insider published an article though about how the S&P500 fares after a two-term US President and it is a rather sobering analysis worth keeping in mind as US President Obama draws towards the end of his two-term presidency.

Thus, 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 has closed just under the psychological 2,100 level but above the daily support trend line.

S&Pdaily

S&P500 weekly: this still has a bit of a Bull Flag appearance with a breakout in progress. Traders need to watch the 2,135 level though for any breakout or respect. Respect may signal a bearish ‘Double Top’:

S&Pweekly

Ichimoku S&P500 daily chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. There has been a recent bullish Tenkan/Kijun cross and price is above the Cloud and key 2,000 level but just below the 2,100 level:

S&PdailyCloud

Ichimoku S&P500 weekly chart: the weekly candle closed as a bullish candle and still above the weekly Cloud. I would want to see a sustained bearish move below the Cloud to support bearish sentiment. Note how the weekly Cloud remains aligned along the key 2,000 level:

S&P500weeklyCloud

S&P500 monthly chart: a break of the monthly support trend line. The monthly trend line remains intact for now but a break of this support level would suggest to me of a more severe pull back. Bearish divergence on the monthly chart had warned of recent weakness and I, like the Elliott Wave indicator, had been looking for a test of the 1,600 region but this might not evolve:

S&Pmonthly

Russell 2000 Index: this small caps index is considered a US market ‘bellwether’ and does have a bit of a potential bearish H&S brewing but any new close and hold back above $1,220 would void this. The weekly candle closed as a bullish candle though following the monthly candle that was bullish and, basically, engulfing:

RUTweekly

VIX Index: The ‘Fear’ index is still down near the 14 level and has printed a bearish weekly candle.

VIXweekly

Copper: closed with a bearish weekly candle but still within the bullish descending wedge that is set within the larger triangle pattern.

HGweekly

Oil: The ‘Triple Bottom’ continues to take shape but the $45 level support gave way this week and there was a bearish weekly candle. We now need to keep an eye on the $40 level:

CLweekly

Trading Calendar Items to watch out for:

  • Sun 8th: CNY Trade Balance.
  • Mon 9th: Eurogroup meetings.
  • Tue 10th: AUD NAB Business Confidence. CNY CPI & PPI. GBP Inflation Report hearings. ECOFIN meetings.
  • Wed 11th: NZD RBNZ Financial Stability Report & RBNZ Gov Wheeler speaks. CNY Industrial Production. GBP Unemployment data & BoE Gov Carney speaks. USD & CAD Bank Holiday. EUR ECB Draghi speaks.
  • Thurs 12th: AUD Unemployment data. USD Weekly Unemployment Claims.
  • Fri 13th: EUR German Prelim GDP. USD Core Retail Sales, Retail Sales, PPI & Prelim UoM Consumer Sentiment.

Forex:

E/U: The E/U remains weak and below the weekly chart’s Bear Flag lower trend line. This potential 3,500 pip bearish pattern has already given around 350 pips but the previous low near 1.045 back is now the level to keep sight of.

Any continued US$ strength, and break and hold above the 100 level on the US$ index, will keep pressure up on this pair and may help this huge Bear Flag to further develop. However, any failure of the US$ index to break up through this 100 resistance level could help to support this pair and, if so, I’d be looking to the previous low of 1.045 as possible support with the prospect of a ‘Double Bottom’ then perhaps evolving. I make no predictions or claims other than to suggest to keep the US$ in sight and be prepared for either outcome. I do also note the bearish momentum building on the E/U weekly chart.

Just FYI: The E/U has fallen 600 pips since the recent period of Ichimoku alignment kicked in. I wrote a separate article about this earlier today and it can be found through the following link

Descending triangle on the monthly chart: There is still an overall bearish pattern in play on the E/U monthly chart: a 4,300 pip bearish descending triangle breakdown 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 4,300 pips. Technical theory would suggest that the 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!

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

The weekly candle closed as a large bearish candle.

Traders need to watch for data that impacts the US$ as well as for the ECB Draghi speech on Wednesday and German Prelim GDP on Friday.

  • I’m watching for any new TC signal on this pair, the Bear Flag trend lines and the key 1.12 level.

EU4

EUdaily

EUweekly

EUmonthly

E/J: The E/J continues trading below the daily chart’s broken triangle trend line but just above the key 132 level.

I’m still seeing the monthly Cloud’s bearish Tenkan/Kijun cross and these crosses have been few and far between and so they are worth noting! I’ll be watching for any new close below 132 to possibly support this bearish cross:

EJmonthlyCloud

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

The weekly candle closed as another bearish coloured ‘Spinning Top’ candle reflecting some indecision.

As for the E/U, traders need to watch for data that impacts the US$ as well as for the ECB Draghi speech on Wednesday and German Prelim GDP on Friday.

  • I’m watching for any new TC signal on this pair and the 132 level.

EJ4 EJdaily EJweekly EJmonthly

A/U: The A/U chopped sideways last week and formed up into a symmetrical triangle in the lead up to NFP. The upbeat jobs data caused the US$ to rally which put pressure on this pair and triggered a triangle breakdown worth 100 pips. Note how price found support though from the 0.70 level near the 78.6% fib of the recent swing high move.

Price action remains below the 0.735 ‘neck line’ level of a possible bullish-reversal ‘Double Bottom’ and below three other support areas:

  • the previously broken monthly-chart trend line.
  • the 61.8% fib of the major swing high move from 2000 to 2011 near 0.715 and
  • the 78.6% fib of the 2008-2011 swing high move near 0.71.

AUmonthly

The ‘technicals’ sure look bearish here but this pair hasn’t suffered as significantly as it could have given the state of the US$. I’ll be on the lookout for any upbeat CNY or AUD data to support this pair in spite of any continued US$ strength. We still have the Turnbull Turnaround factor at play here!

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

The weekly candle closed as a bearish candle.

Traders should be on the lookout for any impact from Sunday, Tuesday and Wednesday’s Chinese data, Tuesday’s AUD NAB Business Confidence and Thursday’s Employment data as well as the US$-sensitive data.

  • I’m watching for any new TC signal on this pair and the 0.70 support level.

AU4 AUdaily AUweekly

A/J: The A/J remains below the key 89 level but bounced up off a support triangle trend line to close a bit higher for the week.

Price is trading in the top of the Cloud on the 4hr and daily charts but below the weekly and monthly Cloud.

The weekly candle closed as a bullish candle.

As for the A/U: Traders should be on the lookout for any impact from Sunday, Tuesday and Wednesday’s Chinese data, Tuesday’s AUD NAB Business Confidence and Thursday’s Employment data as well as all of the US$-sensitive data.

  • I’m watching for any new TC signal on this pair, the daily chart’s triangle trend lines and the 89 level.

AJ4 AJdaily AJweekly AJmonthly

GBP/USD: The Cable had a bearish week with dovish BoE comments on Thursday pushing thoughts of any UK rate rise out further and this sent price down to the support of the daily chart’s bottom triangle trend line. NFP on Friday delivered more US$ strength and another blow for the GBP/USD that moved price from this triangle trend line down towards the 1.50 support level to give a 470+ pip fall for the week. This triangle pattern had been building for over six weeks and, thus, the breakdown could prove to be quite significant. The 30 min chart below shows the impact from these Thursday and Friday economic events:

GU30min

With such a huge move lower last week it would not surprise at all though to see a relief rally, even if only brief, and the broken triangle trend line could be a target in any such move. A test of this broken trend line would not surprise either as this conforms with basic triangle-breakdown technical theory. The 4hr chart below shows this broken trend line up near the 50% fib of this recent swing low move and this would be the region to watch for any pull-back move.

The triangle pattern however is worth about 1,100 pips and we’ve already seen a 200 pip fall. Any break and hold below the 1.50 level might help to deliver the remaining quota though. If so, the monthly chart shows that the target for this triangle breakdown move would be down near the 1.40 area and, given that this is a previous support area, it would be an obvious place to target for any bearish continuation move. The 1.50 level is clearly the one to watch for any possible support for the GBP/USD.

Weekly chart H&S: There is also a possible bearish H&S pattern still forming on the weekly chart as well but the failure to break below the ‘neck line’ is holding this pattern off the time being. The height of the pattern is about 2,400 pips and suggests a similar move lower with any break and hold below the ‘neck line’. I would consider that any close and hold back above 1.60 would void this pattern.

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

The weekly candle closed as a large bearish engulfing candle.

Traders need to watch for the data that impacts the US$ and also GBP Employment data on Wednesday.

  • I’m watching for any new TC signal on this pair and the 1.50 level. 

GU4

GUdaily GUweekly GUmonthly

GBP/JPY: The GBP/JPY chopped up and then down last week with the BoE dovish commentary impacting here as well. Price has held above the key 184 level but respected the upper trend line of a daily chart wedge. Remember that 184 is near the 50% fib of the major monthly chart 2007-2011 swing low move.

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

The weekly candle closed as a bearish coloured ‘Spinning Top’ candle.

As for the Cable, traders need to watch for the data that impacts the US$ and also GBP Employment data on Wednesday.

  • I’m watching for any new TC signal on this pair, the 184 level and the revised daily-chart wedge pattern.

GJ4hr GJdaily GJweekly GJmonthly

Kiwi: NZD/USD: The NZD/USD traded lower last week, hurt by the GDT price index and NZD employment data. It did manage to close the week though just above the support of the 61.8% fib of the recent swing high move (see 4hr chart).

Price action can now be seen having broken down from a recent 4hr chart descending trading channel and trading under the 0.67 S/R level. However, strange as it may seem, I do see a possible bullish-reversal ‘inverse H&S’ forming on the weekly chart though but this would be undermined if US$ strength continues. Any major push down with price from current levels would void this pattern though.

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

The weekly candle closed as a large bearish candle.

Traders need to watch for impact from Chinese data on Sunday, Tuesday and Wednesday and from Wednesday’s RBNZ Financial Stability Report and RBNZ Gov Wheeler speech.

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

Kiwi4

KiwiDaily KiwiWeekly

KiwiMonthly

The Yen: U/J: The U/J broke up and out from a ten-week trading channel last week following mid-week hawkish Fed comments and then got a further boost from Friday’s NFP to add on 290 pips for the week.  The key 124 level can be seen again now just above current price.

Monthly Chart Bullish Cup’ n’ Handle pattern: There looks to be a new bullish Cup ‘n’ Handle forming up on the monthly chart. 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 4,800 ~ 4,900 pips. This may seem like a massive move but the longer term chart below shows this move to be reasonable as it would take the U/J up near the 50% fib of the 1985-2012 swing low move. Note the 101.5 level on the other monthly MT4 chart though. Any pullback down to this level, apart from helping to form up a huge Handle for the Cup ‘n’ Handle, would also help to develop a bullish ‘inverse H&S’ pattern.

UJmonthly

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

The weekly candle closed as a bullish engulfing candle.

  • I’m watching for any new TC signal on this pair and the 124 level.

UJ4 UJdaily UJweekly UJmonthly

USD/CAD: The USD/CAD consolidated within a symmetrical triangle last week above the key 1.30 level in the lead up to Friday’s NFP. The upbeat US jobs data trumped that of the upbeat CAD employment data and triggered a bullish triangle breakout worth over 90 pips. This triangle breakout now brings the monthly chart’s 61.8% fib region back into focus as a potential target for any bullish continuation move.

Just FYI: the 30 min chart shows how this pair lends itself nicely to shorter term trading during the US session:

Loonie30min

I’m still seeing a ‘Cup’ pattern forming up on the monthly chart and this might help explain this extended choppiness around the 1.30 region as price action creates the ‘Handle’.

Monthly Chart Cup ‘n’ Handle? The monthly chart shows a possible bullish Cup ‘n’ Handle pattern forming up under the 1.30 level. This is worth keeping an eye on as the pattern would be worth up to 3,500 pips if it was to evolve as this is the height of the ‘Cup’. The interesting point is that the target for this pattern would put price up at the highs reached back in 2002 and this is equal to a 100% Fib retracement of the 2002-2007 bear move.

LoonieCloudMonthly

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

The weekly candle closed as a bullish engulfing candle.

  • I’m watching for any new TC signal on this pair, the triangle trend lines and the 1.30 level.

Loonie4hr

LoonieDaily LoonieWeekly LoonieMonthly

GBP/AUD: This pair chopped lower last week and was also helped by the dovish BoE commentary but it remains above key 2.07 support.

There is still the look of a ‘Cup’ pattern on the monthly chart which could support continued choppiness around the 2.07 region as a potential ‘Handle’ forms up. Any continued bullish momentum may bring an alternative monthly chart pattern into focus though. A continued push up to the 2.40 region near the 61.8% fib would help to form up a possible bullish ‘Inverse H&S’ pattern. I would then be looking for any pullback back down to the ‘Shoulder’ region of 2.07.

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

The weekly candle closed as a bearish candle.

Traders need to watch for the data that impacts the AUD and the GBP: Sunday, Tuesday and Wednesday’s Chinese data, Tuesday’s AUD NAB Business Confidence, Thursday’s AUD Employment data and also GBP Employment data on Wednesday as well as the US$-sensitive data.

  • I’m watching for any new TC signal on this pair, the daily chart’s Flag trend lines and the 2.07 level.

GA4 GAdaily GAweekly GAmonthly

EUR/AUD: Price traded lower below the key 1.55 level last week and this remains the level to watch for this pair.

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

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

  • I’m watching for any new TC signal on this pair, the daily chart’s trading channel and the 1.55 level.

EA4 EAdaily EAweekly EAmonthly

GBP/NZD: The GBP/NZD broke up and out from its range-bound 2.30 and 2.24 channel following bearish NZD reaction to the GDT Price Index data and NZD Employment figures but the subsequent bearish GBP move pulled price back down to the breakout 2.30 level. This 2.30 level is the one to watch this coming week.

Price action continues to consolidate under the monthly chart’s major bear trend line. Any further bearish continuation might target the weekly chart’s 61.8% fib and, after that, the previous breakout and S/R region of 2.10 which happens to be near the weekly 200 EMA.

The GBP/NZD is trading below the Cloud on the daily chart but above the Cloud on the 4hr, weekly and monthly charts.

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

  • I’m watching for any new TC signal on this pair and the 2.30 level.

GN4hr GNdaily GNweekly GNmonthly

Silver: Silver has not enjoyed the bullish US$ and hawkish Fed comments and has again closed lower for the week and down below $15 support, however, it is still within the weekly chart’s wedge pattern.

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

The weekly candle closed as another bearish candle.

Any new and sustained hold back below $15 would be bearish though and would bring the $11 and $9 levels back into focus. $11 is previous S/R and the $9 area is the 100% fib level.

  • I’m watching for any new TC signal, the $15 level and the weekly chart’s descending wedge trend lines.

SilverWeekly SilverMonthly

Gold:  Gold has also suffered with the stronger US$ and pulled lower to close back below the $1,100 support level.

The weekly hold back below $1,100 is bearish and is bringing the recent low near $1,050 into focus. Bearish targets below $1,100 include this recent low near $1,050, the $1,000 psychological level and, then, the 78.6% fib near $950.

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

The weekly candle closed as a large bearish candle.

  • I’m watching for any new TC signal, the wedge trend lines and the $1,100 level.

GoldWeekly GoldMonthly

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