US$ & US data: divergence continues

The US$ had another down day despite upbeat NFP headline jobs data. The wages component of the data was weaker than expected suggesting potential for a dovish Fed but the overall employment result was strong. I noted a couple of weeks ago when the US$ dipped following upbeat US CPI data that this might prove to be a turning point for the US$ and this latest development is keeping that outcome alive; for the time being at least. 

USDX

Monthly: The new March candle is printing a bearish coloured ‘Spinning Top’ candle and is below the key 100 level.  The monthly chart below shows a Bull Flag forming up but, given the 100 level is proving to be some resistance, there is also a possible ‘Double Top’ developing as well. The Bull Flag pattern, if it evolves, might target the 120 region and 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. (NB: this chart has not updated with Friday’s data):

DXYmonthly

Monthly Ichimoku: The March candle is trading well above the Cloud.

USDXmonthlyCloud

Weekly: The weekly candle closed as a bearish coloured ‘Inside’ candle. Price action remains range-bound between 100 and 92.50 and has been within this channel for over 12 months. Any break and hold below 92.50 would have me looking for a potential move down to test the congested area containing the weekly 200 EMA, 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 above the weekly Cloud.

USDXweeklyCloud

Daily: There was only one bullish day last week.

USDXdaily

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

USDXdailyCloud

4hr: Price chopped a bit higher to start the week but then chopped lower.

USDX4

4hr Ichimoku Cloud chart: Price traded above the 4hr Cloud to start the week but then chopped down through the Cloud to close the week below. This chart is now aligned with the daily chart and suggests SHORT US$.

USDX4hrCloud

EURX

Monthly: The March candle is printing a bullish coloured ‘Spinning Top’ candle and is holding above the 94 level giving the chart a ‘Double Bottom’ appearance.

EURXmonthly

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

EURXmonthlyCloud

Weekly: The weekly candle closed as a small bearish candle with a long lower shadow but the index is still within a weekly Flag. 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. Any bullish continuation might eventually target the 50% and 61.8% fib levels of this two-year swing low move.

EURXweekly

Weekly Ichimoku: Price is trading in the bottom edge of the weekly Cloud.

EURXweeklyCloud

Daily: There were two bearish days and three bullish days last week.

EURXdaily

Daily Ichimoku Cloud chart: Price dipped into the daily Cloud on Monday and chopped in and out of this resistance zone for the next three days. US$ weakness on Friday however helped to lift this index up and out of the Cloud.

EURXdailyCloud

4 hr: Price chopped lower then higher last week. Note the 4hr trading channel and watch for any breakout: up or down!

EURX4

4 hr Ichimoku Cloud chart: Price traded below the 4hr Cloud last week but it is now back up just under this resistance. This chart is divergent from the daily chart for the time being and suggests choppiness. The Cloud above price is reasonably thin though so watch for for any bullish breakout:

EURX4hrCloud

General:

  • Both indices continue to hold within long-term Flag patterns that have persisted for over 12 months.
  • The USDX and EURX remain DIVERGENT on their Ichimoku 4hr & daily charts BUT any continued US$ weakness would shortly tip them into ‘risk-on’ alignment.

USDX: The US$ closed lower last week despite strong US Manufacturing, ADP and NFP Employment data and decent Non-Manufacturing PMI data. Thursday’s Weekly Unemployment Claims data was a bit weaker than expected but the headline result was still strong. The wages component of NFP was also a bit weak and these latter two data points seem to be keeping US$ Bulls nervous of a potentially dovish Fed. There isn’t much US high impact data scheduled for next week but there is the ECB Minimum Bid Rate data that could impact the US$:

  • A highly dovish ECB might help to reverse US$ losses in Yin-Yang fashion but,
  • Any less than expected ECB dovish tone could keep the EUR$ supported and accelerate losses for the US$.

As I’ve mentioned over many weeks though 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 twelve months now. Thus, the levels to keep watching on the USDX are:

  • The weekly chart Flag trend lines.
  • The psychological 100 level above current price. This is the top of the trading range.
  • The 92.50 level below current price. This is the bottom of the trading range.

EURX:  The EURX closed higher for the week but, with little Euro data released last week, the gain continues to come primarily at the expense of US$ weakness. Despite this US$ weakness the fact remains that there is clear policy divergence with the Eurozone trading within a monetary easing cycle and the US trying to emerge from one and so this recent US$ weakness might still prove to be temporary. Thus, I continue to keep an open mind here especially with the ECB’s Monetary Policy update set down for next week.

The levels to watch on the EURX continue to be:

  • The weekly chart Flag 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 Flag 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 the more recent ‘Double Bottom’ level as seen on the weekly chart.

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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