The US$ index has printed its first weekly candle close above 100 in almost a year. Aristotle reminds us though that ‘One swallow does not a summer maketh‘ and, as well, the last two weekly candle attempts at 100 back in 2015 did not produce any follow-through. Thus, whilst this week’s effort is notable it will be the candle closes in subsequent weeks that will be in focus.
Monthly: The November candle is printing a large bullish candle and is now above the key 100 level. This longer-term monthly chart still shows a Bull Flag forming and, if it evolves, the potential target could 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 monthly candle break and hold back above 100 might be expected to target this region. The last monthly candle to close above 100 was in November 2015 but this did not hold. It will be interesting to see if the 2016 November candle can close above 100 and, then, hold this level. The current monthly candle still has over a week to go before it closes though.
Monthly Ichimoku: The November candle is trading well above the monthly Cloud and is above the previous S/R level of 98.50 and now also above 100.
Weekly: The weekly candle closed as a bullish candle above the 100 level. Price action had been range-bound between 100 and 92.50 for almost two years but now looks to be attempting a bullish breakout. The last two weekly candles that closed above 100 evolved during 2015 but failed to produce any bullish follow-through so the test will be to see whether this latest effort can produce a continuation move. The weekly chart’s +DMI and ADX are trending upwards above the 20 threshold level which is encouraging for US$ Bulls at this point in time. Next week’s candle close will be the one to watch though to see if it can hold this breakout level.
Weekly Ichimoku: The weekly candle is well above the weekly Cloud.
Daily: Every day was bullish last week. In fact, the last 12 days have been bullish. Thus, one could be forgiven for expecting a bit of a pause or even pullback before further continuation.
Daily Ichimoku Cloud chart: Price traded above the daily Cloud last week.
4hr: Price moved higher last week. I will be watching for any pullback here to possibly target the 100 level as this was resistance but will now be support. Any deeper pullback will have me looking towards the 61.8% fib of this recent swing high move as this is near the 4hr 200 EMA for added confluence.
4hr Ichimoku Cloud chart: Price traded above the 4hr Cloud last week. The US$ is aligned on the 4hr and daily chart time frames suggesting LONG US$ and has been for much of the last two weeks.
Monthly: The November candle is forming a bearish, essentially ‘Engulfing’, candle but remains well above the 94 level supporting the monthly chart’s ‘Double Bottom’ pattern.
Monthly Ichimoku: The November candle is still trading below the Cloud.
Weekly: The weekly candle closed as a bearish candle but remains within the weekly chart’s long-term trading channel. There have been two conflicting weekly-based technical patterns competing for almost two years now; 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 although this support base is starting to broaden.
Daily: Four of the last five days were bearish. I note that the 100 level was broken in the previous week and price has held below this level this week. This previous support level will now be resistance. Also note how price stalled down near the 61.8% fib of this recent swing high move.
Daily Ichimoku Cloud chart: Price traded below the daily Cloud last week after breaking through this support in the previous week.
4 hr: Price chopped lower last week. I will be watching the 50% – 61.8% fib region if there is any pullback here as this is near the previously broken support trend line and just above the key 100 level.
4 hr Ichimoku Cloud chart: Price traded below the 4hr Cloud last week. The EUR$ is aligned on the 4hr and daily charts for SHORT EUR$ and has been for most of the last two weeks.
- The US$ is attempting a bullish breakout from a long-term Flag pattern that has persisted for almost two years.
- Both FX Indices are currently aligned for LONG US$ and SHORT EUR$.
USDX: The US$ closed higher last week making the first weekly close above the 100 level in twelve months; since November 2015. The monthly chart’s bearish H&S has faded for now and the longer-term monthly chart Bull Flag pattern now looks to be evolving. A completed monthly candle needs to be seen to support one or other of these patterns though and the current November candle does not close for another week and a half:
- A monthly candle close above 100 would support the Bull Flag pattern.
- A monthly close back below 98.50 would reinforce the potential of a bearish H&S.
As mentioned over many months though, I have considered the US$ to be in no-man’s land though whilst it traded above 92.50 but below 100. I am waiting for monthly candle proof that this is true breakout from this region as this choppy and range-bound price action has gone on for almost two years. I do note that the previous two weekly closes above 100, during 2015, were not sustained so I will be looking to see how price action fares next week. However, two consecutive weekly closes above 100 would have to be read as bullish and supporting the Bull Flag scenario. For now though, 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. This is the top of the longer-term trading range.
- The 92.50 level. This is the bottom of the longer-term trading range.
EURX: The EURX closed lower last week and held below the key 100 level, a key level that was broken in the previous week and which will now be resistance above current price. The Trump victory has been positive for the US$ and has brought policy divergence back into focus with the Eurozone trading within a monetary easing cycle and the US trying to emerge from one. The USDX is currently trying to make a bullish breakout from its long-term trading channel whereas the EURX remains within its channel.
The levels to watch on the EURX continue to be:
- The 100 level; which is now resistance above 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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