US$: muted reaction to NFP telling?

USDX

Monthly: The new December candle is currently printing a bearish coloured ‘Inside’ candle and is back below the key 100 level.  The monthly chart below shows that whilst there has been a Bull Flag breakout the 100 level is proving to be some resistance and that a ‘Double Top’ could be forming up here now. The Bull Flag pattern, if it evolves, might target the 120 region and 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 117 ~ 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 could be expected to target this region.

DXYmonthly

Monthly Ichimoku: The December candle is trading above the Cloud.

USDXmonthlyCloud

Weekly: Last week’s candle closed as a bearish, almost ‘engulfing’, candle despite holding up and out from the long-term Bull Flag pattern. The 100 level is proving to be a challenge with some obvious ‘Double Top’ jitters. Keep in mind that any bearish breakdown and move back below 92.50 would bring the 61.8% fib level into focus as this is down near 87, the weekly 200 EMA and the previously broken triangle trend line.

USDXweekly

Weekly Ichimoku: The weekly candle closed above the weekly Cloud and the bullish Tenkan/Kijun cross still remains open, for the time being.

USDXweeklyCloud

Daily: Thursday and the ECB did all the damage here this week.

USDXdaily

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

USDXdailyCloud

4hr: Price fell heavily with ECB on Thursday. Friday delivered a strong US jobs and wages result with NFP and the US$ did recover somewhat but…not as much as I would have expected!

USDX4

4hr Ichimoku Cloud chart: Price traded above the 4hr Cloud until Thursday but closed the week below the Cloud. This move triggered a new bearish Tenkan/Kijun cross. This chart is now divergent from the daily chart and suggests choppiness.

USDX4hrCloud

EURX

Monthly: The new December candle is printing a large bullish, albeit ‘Inside’, candle off the 94 support level. This is bringing the potential of a ‘Double Bottom’ back into focus.

EURXmonthly

Monthly Ichimoku: The December candle is trading below the Cloud.

EURXmonthlyCloud

Weekly: The weekly candle closed as a large bullish, essentially ‘engulfing’, candle and is back up near the previously broken Bear Flag trend line and above the key 96 support level. There have been two conflicting weekly-based technical patterns competing over recent months; a basing-style bullish ‘Double Bottom’ and a ‘Bear Flag’ but there still isn’t a clear winner just yet.

EURXweekly

Weekly Ichimoku: Price is trading below the weekly Cloud and the bearish Tenkan/Kijun cross remains open.

EURXweeklyCloud

Daily: Price traded higher each day except for Friday with a huge boost coming on Thursday from the ECB.

EURXdaily

Daily Ichimoku Cloud chart: Price traded below the daily Cloud all week although it did reach up to test the bottom of this resistance zone on Thursday.

EURXdailyCloud

4 hr: Price chopped a bit higher to start the week but got a huge lift on Thursday from the ECB.

EURX4

4 hr Ichimoku Cloud chart: Price traded below or in the 4hr Cloud until Thursday when it rallied to close the week above the Cloud. There has been another new bullish Tenkan/Kijun cross here. This chart is also now divergent from the daily chart and suggests choppiness.

EURX4hrCloud

General:

  • Both indices continue to hold out from long-term Flag patterns that had persisted for over 8 months although the breakout trend lines are currently being tested. I remain on the lookout for any follow-through action.
  • The USDX and EURX are back to being DIVERGENT on their Ichimoku 4hr & daily charts.

USDX: The US$ closed lower last week in a capitulation-style move following disappointment with the ECB’s latest stimulus package. The ECB stimulus was less than the broader market had expected and this triggered a EUR$ relief rally in what many are describing as a temporary short squeeze. The US$ fell heavily in reaction to this ECB news on Thursday but of just as much interest to me is that whilst the US$ did recover following Friday’s strong US jobs and wages report this recovery was fairly mute. I still wonder whether any modest and gradual US rate rise will be sufficient to continue to fuel the rally on this index as well as divergence between the EUR$ and US$. IMHO, Friday’s modest reaction to NFP was a nod to just that possibility!­

As I’ve mentioned over many weeks, despite this recent Bull Flag breakout, I still consider the US$ to be in no-man’s land whilst it trades above 92.50 and below 100. I continue to wait 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 eight months now. Thus, the levels to keep watching on the USDX are:

  • The weekly chart Flag trend lines: the breakout continues to hold here……just
  • The psychological 100 level above current price. This is the top of the recent trading range.
  • The 92.50 level below current price. This is the bottom of the recent trading range.

EURX:  The EURX closed higher for the week following the underwhelming ECB stimulus announcement. However despite this, and the fact that the US$ is stalling at the 100 level, the situation remains that the Eurozone is trading within a monetary easing cycle whilst the US is trying to emerge from one and, so, this reversal could prove to be just temporary and the ‘short squeeze’ that many have labeled this as. I am keeping an open mind here though despite this policy divergence.

The levels to watch on the EURX continue to be:

  • The weekly chart Flag trend lines: the breakout has retraced to test this breakout TL.
  • The 105.5 level: The weekly chart reveals that a 61.8% fib retracement of the recent lengthy bear move is back up near the 105.50 level and weekly 200 EMA. Any hold back above 96 and continued recovery effort might see the index target this region.
  • The 96 level:This is a major support level for the EURX and has been a previous ‘Double Bottom’ region.
  • The 94 level: This is a more recent ‘Double Bottom’ level.

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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