The US$ had a bullish week and has tackled one key S/R level at 98.50 which now leaves the key 100 within its sight.
Monthly: The October candle is printing a bullish ‘engulfing’ candle with just over one week to go until it closes off. This longer-term 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.
Monthly Ichimoku: The October candle is trading well above the monthly Cloud but note the look of a bearish H&S on this time frame chart. The 98.50 is the ‘Shoulder’ here so watch to see where the monthly candle eventually closes with respect to this key S/R level.
Weekly: The weekly candle closed as a small bullish candle and the index looks like it is headed for another test of the key 100 level, that is, assuming it can hold above the 98.50 level. Overall though, price action remains range-bound between 100 and 92.50 and has been stuck within this channel for over 22 months. I note that the weekly chart’s +DMI and ADX are now both just above the 20 threshold level so watch for any bullish continuation here.
Weekly Ichimoku: The weekly candle is holding back above the weekly Cloud which is bullish.
Daily: Price action got a move along after Thursday’s ECB release.
Daily Ichimoku Cloud chart: Price traded above the daily Cloud last week.
4hr: Price essentially chopped sideways until Thursday when ECB news helped to boost the US$.
4hr Ichimoku Cloud chart: Price traded above the 4hr Cloud last week. The US$ is above the Cloud on the 4hr and daily chart time frames suggesting LONG US$.
Monthly: The October candle is now forming a bearish reversal ‘Shooting Star’ candle but, with a bit over a week until it closes, at least it remains well above the 94 level supporting the monthly chart’s ‘Double Bottom’ pattern.
Monthly Ichimoku: The October candle is still trading below the Cloud.
Weekly: The weekly candle closed as a bearish candle and remains within the weekly chart’s long-term trading channel. There have been two conflicting weekly-based technical patterns competing over many months; a basing-style bullish ‘Double Bottom’ and a trading channel with a ‘Bear Flag’ look to it but there still isn’t a clear winner just yet. Any bullish continuation might eventually target the 50% and 61.8% fib levels of this two-year swing low move.
Weekly Ichimoku: Price action continues to hold above thin weekly Cloud.
Daily: Price chopped lower last week with only Monday printing a bullish candle and note how the 4-month support trend line has been broken. A 50% fib pullback would bring price down to near the 100 S/R level which is also near the daily 200 EMA. Price closed the week just above this level but this remains the region to watch for any make or break activity nest week. A break below this support would bring the 61.8% fib into focus as the ‘line in the sand’ for this move as a break of this fib level is generally regarded as a ‘reversal’:
Daily Ichimoku Cloud chart: Price is holding above the daily Cloud, for now, that is.
4 hr: Price chopped lower last week.
4 hr Ichimoku Cloud chart: Price chopped lower whilst underneath the 4hr Cloud last week. The EUR$ is divergent on the 4hr and daily charts for now suggesting choppy EUR$.
- Both indices continue to hold within long-term broad Flag patterns that have persisted for over 22 months.
- The US$ index is aligned on the 4hr and daily chart time frame for LONG US$.
USDX: The US$ closed higher last week but, whilst US data was somewhat mixed, it was really the fall with the EUR$ and Central Bank divergence that helped to boost this US$ index. Price closed the week just above the 98.50 level and this will be one level to watch as the month draws to a close. The monthly chart shows a possible bearish H&S forming, with this 98.50 level as the ‘Shoulder, however, the longer-term monthly chart still shows the index trading within a consolidation-style Flag pattern. It is worth noting though that bullish momentum has now registered on the weekly chart and this is the first time the ADX has ticked above the 20 threshold in over four months.
As mentioned over many months though, 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 22 months. The levels to keep watching on the USDX are:
- The 95.50 level.
- The 98.50 level: the ‘Shoulder’ of a potential bearish H&S on the monthly chart.
- 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.
There is a bit of US data to impact here with Tuesday’s Consumer Confidence data, Thursday’s Core Durable Goods and Weekly Unemployment Claims and Friday’s Advance GDP.
EURX: The EURX closed lower last week and this demise accelerated following the ECB rate announcement. The monthly chart is now showing a bearish-reversal monthly candle forming although there is still over a week to go before this closes. However, a 4-month support trend line has been broken which, at a minimum, is short-term bearish for the index.
Price action has pulled back to just above the 50% fib of the recent swing high move and just above the key 100 S/R level and daily 200 EMA. These are the levels to watch for any make or break activity next week.
Traders need to remember that there is clear 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 this is what drove much of the action on both indices last week. 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 is some EUR PMI data on Monday plus another ECB Draghi speech on Tuesday to impact this pair next week.
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.