US$: focus turns to Jackson Hole

The US$ closed lower last week and fell below a key support level. The focus is now on next Friday’s Yellen speech from Jackson Hole to see whether news from this event might help to support the ailing US$.

USDX

Monthly: The August candle is now printing a bearish candle. For the time being though, 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 August candle is trading well above the monthly Cloud BUT note the Bollinger bands beginning to clamp down.

USDXmonthlyCloud

Weekly: The weekly candle closed as a large bearish candle below the key S/R level of 95.50. Overall though, price action still remains range-bound between 100 and 92.50 and ­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: The weekly candle closed below the weekly Cloud.

USDXweeklyCloud

Daily:  price action was bearish for 4 out of the 5 days last week but with Friday’s bullish candle printing an indecision-style ‘Inside’ candle so nothing to get to excited about.

USDXdaily

Daily Ichimoku Cloud chart: Price moved below the daily Cloud last week.

USDXdailyCloud

4hr: Price chopped lower last week and broke down from the recent 4hr chart triangle pattern.

USDX4

4hr Ichimoku Cloud chart: Price traded below the 4hr Cloud all of last week. This chart is now aligned with the daily chart for SHORT US$.

USDX4hrCloud

EURX

Monthly: The August candle is trading as a bullish candle and well above the 94 level giving the monthly chart a more pronounced ‘Double Bottom’ appearance.

EURXmonthly

Monthly Ichimoku: The August candle is still trading below the Cloud though but note how the Bollinger bands continue clamping down here.

EURXmonthlyCloud

Weekly: The weekly candle closed as a bullish 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 closed above the weekly Cloud. This is the sixth, full weekly candle to clear the weekly Cloud which continues to be a bullish signal.

EURXweeklyCloud

Daily: Price was bullish every day of last week and note the hold out from the recently broken trading channel.

EURXdaily

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

EURXdailyCloud

4 hr: Price chopped higher last week.

EURX4

4 hr Ichimoku Cloud chart: Price traded above the Cloud all of last week. This chart remains aligned with the daily for LONG EUR$.

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 NOW ALIGNED across their 4hr and daily charts supporting a ‘risk-on’ bias.

USDX: The US$ closed lower last week and broke below the key 95.50 S/R level and this level, that had been acting as support, will now be resistance above current price. Price was bearish from Monday through to Thursday but even Friday’s bullish day could only manage an indecision-style ‘Inside’ candle. There isn’t much ‘high impact’ data next week but Friday brings Janet Yellen’s Jackson Hole speech and this may be the US$ main event. Traders will be looking to see if the Fed Chair will give any clues as to whether there might be a rate hike as early as September and, if so, this could help to reverse fortunes for the ailing US$. There is also a BoJ Gov Kuroda speech on Tuesday and US Core Durable Goods data on Thursday that could also impact here as well.

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 18 months. The levels to keep watching on the USDX are:

  • The 95.50 level; which is now resistance above current price.
  • The psychological 100 level above current price. This is the top of the weekly chart’s trading range.
  • The 92.50 level below current price. This is the bottom of the trading range.

EURX:  The EURX closed higher last week and remains above the key 100 level and this level, that had been resistance, will now be support under current price. Also of note is how price action is heading up to test the upper trend line of the 18-month trading channel and this level will be the one to watch in coming sessions.

Traders need to remember however 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 Jackson Hole meeting might bring that reality back into focus. For now, though, both FX Indices remain trading within long-term trading channels and so I continue to wait for a decisive breakout from these resistance zones.

The levels to watch on the EURX continue to be:

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