US$ weakness: will it continue & shape markets?

Last week: There weren’t any decent TC signals last week but with FOMC and BoJ on the calendar I wasn’t too surprised that longer-term momentum moves were lacking. The exception was on the EUR/USD but I didn’t post or take this signal given it triggered on Thursday just before the looming BoJ news. As is the case when the FX Indices are divergent, though, there were some good TC signals off 30 minute charts during the European and US sessions and I noted as much in a post.

This week:

US$: The US$ closed lower for the week and is back down near a major S/R threshold. This recent US$ weakness is supporting a risk off bias and so I’m watching to see if this develops at all. A review of the FX Indices can be found through the following link.

Chinese data: there is some CNY data released on Monday and this may help to shape market sentiment to start the week.

S&P500: this major stock index has printed a new monthly high above the 2,135 breakout level. The longer-term chart of the index shows the 20-year trend following the previous channel breakout so I’m keeping an open mind about the next twenty years. I’m also on the lookout for a possible pullback to test this 2,135 breakout region before any potential bullish continuation:

Central Banks: two Central Banks report interest rate decisions this week: the RBA (AUD) and BoE (GBP).

NFP: this US data item is often a market mover and is on Friday.

New month: Monday marks the start of a new month so check for new monthly pivots and how July monthly candles closed.

Gold: Gold finally made a wedge breakout and has moved up closer to the major 5-year bear trend line and this bullish move evolved despite last week’s bearish candle formation. I had suggested it would be best to keep an open mind with Gold and that advice seems to have proved useful.

USD/CAD: this pair is back down near the key 1.30 level ahead of a big data week for both of these currencies.

Long legged Doji candles: quite a few FX pairs printed Long Legged Doji candles for the month. These candles reflect a large amount of indecision so if you’re struggling with FX at the moment, then, perhaps that’s why! Long legged Doji monthly candles were printed on the EUR/JPY, AUD/JPY, GBP/USD and USD/JPY.

Stocks and broader market sentiment:

The DJIA and S&P500 closed at new monthly highs but both printed bearish coloured indecision-style ‘Doji’ weekly candles, albeit, these candles held above respective key support levels: S&P500: 2,135 and DJIA: 18,400. The NASDAQ printed a new monthly high and a bullish weekly candle and the Russell 2000 also closed with bullish weekly and monthly candles.

I continue to watch out for further clues as to any new momentum move, long or short though! In particular I’m looking out for: (click on charts to enlarge view):

S&P500 daily chart: The index continues to hold up from the Bull Flag and momentum looks to be building. Keep an eye out for any test of the 2,135 level in coming sessions though.

S&P500 weekly: The index closed with a bearish Doji candle BUT above the Bull Flag’s upper trend line and 2,135 level. I’m watching for any uptick with the ADX:

S&P500 monthly: the monthly candle has closed as a bullish candle and above the 2,135 breakout region. I am still looking for a move up to the longer-term target of 2,500:

NASDAQ: This continues to hold up with a bullish weekly-chart Flag breakout for the time being.

DJIA: ditto here.

Russell 2000 Index: this small caps index is considered a US market ‘bellwether’ and continues to hold above the Flag supporting a bullish breakout for the time being. The weekly and monthly candles were bullish.

VIX Index: The ‘Fear’ index has printed a bearish candle and is still below the 14 threshold level.

Oil: Continues holding above the 2009 GFC low of $33.50 but printed bearish weekly and monthly candles. The current pullback, even if it doesn’t get right down to the $40 level, looks sufficient to support the bullish-reversal ‘Inverse H&S’ pattern even now and so I’m keeping an open mind about direction from here on. However, the monthly chart does seem to show a bearish ‘Evening Star‘ pattern although this formed after just a short uptrend:

Trading Calendar ‘High Impact’ data Items to watch out for:

Mon 1^st: AUD, CAD & CHF Bank Holiday. CNY Manufacturing, Non-Manufacturing & Caixin Manufacturing PMI. GBP Manufacturing PMI. USD ISM Manufacturing PMI.
Tue 2^nd: AUD Building Approvals, Trade Balance &RBA Interest Rate decision. NZD Inflation expectations. GBP Construction PMI. NZD GDT Price Index.
Wed 3^rd: GBP Services PMI. USD Private NFP, ISM Non- Manufacturing PMI & Crude Oil Inventories.
Thurs 4^th: AUD Retail Sales. GBP BoE Inflation Report, Bank Rate Votes and BoE Carney speaks. USD Weekly Unemployment Claims.
Fri 5^th: AUD RBA Monetary Policy Statement. CAD Employment Data and Trade Balance. USD NFP.

FOREX:

EUR/USD: The E/U last week finally made a bullish breakout up and out from the 5-week triangle pattern. This move eventually triggered a new TC signal but this only got going after the BoJ update. Note how price action has closed back up near the major 1.12 level though. I would view any new close and hold above 1.12 as rather bullish and as an opportunity to possibly chase an entry on this new LONG TC signal:

The key levels to monitor on the EUR/USD remain as:

daily 200 EMA: this is just under the key 1.12 level: see on the 4hr chart.
1.12: this is a major S/R level from the monthly chart as it is the 61.8% fib of the 2000-2007 swing high move.
1.15: a recent resistance level.
1.18: this is major long term S/R level.
1.22: near weekly 200 EMA, a previous monthly triangle trend line and it is the 50% of the weekly chart’s 2014-2015 swing low move.
1.045 /1.040: the recent & longer term support levels marking the lower boundary of a potential Bear Flag.

Price is now trading above the 4hr Cloud but below the daily Cloud.

The weekly candle closed as a bullish, essentially ‘engulfing’, candle. The monthly candle closed an indecision style ‘Spinning Top’ though.

There isn’t any high impact EUR related news next week but there is a bunch of second tier PMIs out on Monday. As well, there is USD news to impact this pair ,especially NFP on Friday.

There is a TC LONG signal on this pair.

EUR/JPY: Price action chopped around in a triangle near the key 115 level in the lead up to Friday’s BoJ announcement. The announced stimulus was less than expected and so the E/J fell below 115 support and below the 4hr chart’s triangle trend line BUT without printing any clean TC SHORT signal.

The lack of any 4hr TC signal has me a bit cautious with this bearish move and so I’m actually keeping an eye on a daily-chart triangle support trend line. Any close below this trend line would suggest we could get a deeper pullback.

I’ve been posting this monthly Cloud chart on and off over recent months and the bearish Kijun /Tenkan cross did prove to be a bearish signal indeed:

Price is trading below the Cloud on the 4hr, daily and weekly charts which is bearish.

The weekly candle closed as a large bearish candle but the monthly candle was an indecision-style Long Legged Doji, so, I’m being a bit cautious here.

I’m watching for any new TC signal on this pair and the daily chart’s triangle trend lines.

AUD/USD: The A/U continues consolidating within a 10-week triangle pattern but is currently trading up just below the upper trend line here and just under the key 0.76 level. It is worth noting that the upper trend line of this triangle is actually a longer-term 3¹/₂year bear trend line and so any breakout above this TL would be very significant. As well, a new 4hr chart LONG signal is trying to form.

However, it is a big week for the Aussie on the data front and this starts on Monday with Chinese PMIs and is followed on Tuesday with AUD Trade Balance, Building Approvals and the RBA rate decision. There is also Retail Sales on Thursday plus all of the key US data items to navigate including Friday’s NFP. It is widely expected that the RBA will cut rates on Tuesday though and so a respect of this major trend line and 0.76 region could result. However, if US$ weakness continues then falls here could be limited. Thus, this bear trend line and 0.76 is the region to watch for any make or break activity:

Any bullish breakout above 0.76 and the 3¹/₂year bear trend line will have me looking up towards the 0.95 cents level. This is near the 61.8% fib of the recent swing low move (see weekly chart) and also near the other major bear trend line, since 2011, for added confluence.
Any bearish respect of the upper trend line and 0.76 level would have me looking for a test of 0.74 and then the daily chart triangle trend line, the 0.70 level and, finally, the weekly chart triangle trend line.

Price is trading above the Cloud on the 4hr and daily chart which is bullish.

The weekly candle closed as a bullish coloured ‘Inside’ candle reflecting some indecision but the monthly candle was bullish.

I’m watching for any new TC signal on this pair, the upper triangle trend line and the 0.76 level.

AUD/JPY: Price action chopped around in a descending wedge under the key 80 level in the lead up to Friday’s BoJ announcement. The announced stimulus was less than expected and so the A/J broke down from this wedge after this news but without printing any new TC SHORT signal.

I’m a little wary given the absence of any 4hr based SHORT TC signal but I note the 75 level is previous S/R, and about 230 pips below current price, so I will be looking for any possible test of this support. The bullish coloured monthly candle could be read as a bullish-reversal signal and so I’ll be watching to see if any test of 0.75 or nearby actually holds here!

Price is trading below the Cloud on the 4hr and daily chart.

The weekly candle closed as a bearish candle but the monthly candle closed as a bullish coloured Long Legged Doji.

I’m watching for any new TC signal on this pair and the key 75 level.

GBP/USD: The GBP/USD has traded in a range between the 1.30 and 1.35 levels for the last 5 weeks and I’m watching for any breakout from this trading range. The BoE is expected to cut interest rates when it meets this week so this could help define the next direction for the Cable and help it to break free from this trading range.

I continue to watch the following levels on the Cable:

Bullish targets: above current price:

The 1.35 S/R level and GFC low region.
The 1.40 S/R level.
The 1.46 level which is near the monthly chart’s 61.8% fib.
The 1.50 S/R level.

Bearish targets: below current price:

The 1.30 level which is near the monthly chart’s 78.6% fib.
The 1.20 region is previous S/R.
The 1.05 region which is near the monthly chart’s 100% fib.

Price is trading in the 4hr Cloud but below the daily, weekly and monthly Clouds.

The weekly candle closed as a bullish coloured ‘Spinning Top’ candle but the monthly candle closed as a bearish coloured, basically Long Legged Doji, candle and both candles reflect ‘indecision’.

I’m watching for any new TC signal on this pair and the 1.30 / 1.35 levels.

Kiwi: NZD/USD: The NZD/USD bounced up from the monthly 200 EMA last week and this level was support a few weeks ago as well. The monthly 200 EMA was also near the 4hr chart’s 61.8% fib and the 0.70 level for some added support.

Price action drifted higher last week but without printing any new 4hr chart-based TC signal as this pair only popped above the 4hr Cloud on Friday. US$ weakness on Friday helped to boost the Kiwi back up to near the key 0.73 level. This is long-term S/R, best seen on the monthly chart, and I consider this to be the level to watch for any make or break activity in coming sessions.

The NZD/USD is in good company with the AUD/USD though with both Reserve Banks, the RBA and RBNZ, keen to see their currency trading lower. Thus, some traders will be lining up to SHORT the Kiwi if it gets back to 0.73 again but, like with Gold though, I’m keeping an open mind here in case US$ weakness continues as this would then help to support this pair.

The NZD/USD is now trading above the 4hr and daily Cloud which is a bullish shift.

The weekly candle closed as a bullish, almost ‘engulfing’, candle. The monthly candle closed as a small bullish coloured ‘Spinning Top’ though reflecting some indecision.

There is GDT Price Index data to impact here this week as well as the Chinese and US data items.

I’m watching for any new TC signal on this pair and the 0.73 level.

The Yen: USD/JPY: The U/J chopped around in a triangle near the key 105.5 level in the lead up to Friday’s BoJ announcement. The announced stimulus was less than expected and the U/J fell below the 105.5 and triangle trend line support after this news but, like with the other Yen pairs, without triggering a timely 4hr chart-based TC SHORT signal. The major 100.50 S/R level is just 140+ pips below current price now so I’d expect another test of this region. Any hold above this level would help to shape up a potential ‘Double Bottom’ though!

Price is trading below the Cloud on the 4hr & daily charts which suggests bearish U/J.

The weekly candle closed as a large bearish, essentially ‘engulfing’, candle but the monthly candle closed as Long Legged Doji suggesting ‘indecision’.

There is a lot of USD data to impact this pair in the coming week but no slated Yen news.

I’m watching for any new TC signal on this pair and the 100.50 level.

USD/CAD: The USD/CAD broke up and out from the three month wedge pattern during last week but then pulled back to test this breakout region. I wrote an article about this pair during the week, found through this link, and in this article I suggested that any BoJ disappointment could trigger a deeper USD/CAD pullback down to the 1.30 area and that is EXACTLY what we ended up seeing!

The interesting point to note here, though, is that if you look at the weekly USD/CAD chart then there doesn’t appear to be any wedge breakout just yet at all! Thus, I’m still watching the upper wedge trend line and 1.30 levels for any new make or break activity and any failure of 1.30 would bring the lower wedge trend line into focus.

Price is now trading below the Cloud on the 4hr chart but above the Cloud on the daily chart.

The weekly candle closed as a small bearish, essentially ‘Inside’, candle but only just above the major 1.30 level. The monthly candle closed as a bullish coloured ‘Spinning Top’. Both candle formations reflect ‘indecision’.

There is a lot of data and activity to impact this pair in the coming week. Firstly, Oil is hovering just above the key $40 level and any hold above this level could help to support the CAD$. Secondly, there is a batch of USD data including PMIs and NFP and, finally, there is CAD Employment and Trade Balance data. US$ weakness crept in late last week and any ‘to and fro’ with the US$ and CAD$ could see a battle waged over this key 1.30 region. Given the renewed US$ weakness I’m wary about expecting any automatic bounce up from this 1.30 S/R level and, like with so many other currency pairs, I’m keeping an open mind.

I’m watching for any new TC signal, LONG or SHORT, and the 1.30 level.

Other FX Cross Pairs: I have not had time to assess these pairs over the w/e but will try to get to this early next week.

Gold: Gold continues to consolidate under the major 5-year bear trend line. It had been consolidating within a descending wedge under this trend line for over three weeks but finally broke up and out of this wedge during last week but still ended shy of this major resistance trend line.

I noted last week, and again before FOMC, that despite the bearish weekly candle pattern Gold had printed last week, a Dark Cloud Cover pattern, I was keeping an open mind with the next directional move on Gold. US$ weakness on Friday resulted in the metal edging higher and there is a new TC LONG signal trying to form on the 4hr chart. Traders need to also note how there is rising bullish momentum on the daily, weekly and monthly charts.

There is major resistance ahead for Gold though and price action could remain choppy as it navigates these regions. These are the following levels above current price that need to be dealt with: