US$: will the monthly chart’s Bull Flag develop?

The US$ index closed lower for the week but, none the less, it has triggered a Bull Flag breakout on the monthly chart so watch to see if this 100 level can hold and underpin this breakout move. Whilst Friday’s headline NFP was good, the underlying wages component was soft and this could undermine preconceived ideas about the pace of US rate hikes thereby impacting US$ sentiment.

NB: further updates will be brief and less frequent over the following weeks as summer, BBQs, friends, family and Christmas take priority down here.

USDX

Monthly: The November candle closed as a large bullish candle and above the key 100 level but the new December candle is currently printing a bearish coloured ‘Inside’ candle. The longer-term monthly chart shows a Bull Flag has triggered and, if it continues, 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.

dxymonthly

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

usdxmonthlycloud

Weekly: The previous week’s weekly candle is now showing up as a bearish coloured ‘Spinning Top’ candle. When I posted this chart last w/e after market close it was a bullish coloured ‘Spinning Top’ but when the platform opened on Monday that candle completed as bearish coloured. Thus, with this week’s candle being bearish coloured, we now have a bearish-reversal ‘Evening Star’ style of formation setting up. A test of the key 100 level would not surprise here so watch this region for any make or break of this region in coming sessions.

usdxweekly

Weekly Ichimoku: The weekly candle is well above the weekly Cloud.

usdxweeklycloud

Daily:  There was only one bullish day last week.  This could just be a Bull Flag in the making here though as price consolidates above the key 100 level.

usdxdaily

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

usdxdailycloud

4hr: Price chopped sideways to lower last week.

usdx4

4hr Ichimoku Cloud chart: Price drifted down into the 4hr Cloud last week and finished below the Cloud. The US$ is now divergent on the 4hr and daily chart time frames suggesting US$ choppiness.

usdx4hrcloud

EURX

Monthly: The November candle closed as a bearish, essentially ‘Engulfing’, candle and the new December candle is currently a bearish coloured ‘Inside’ and ‘Spinning Top’ candle.

eurxmonthly

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

eurxmonthlycloud

Weekly: The weekly candle closed as another bullish coloured ‘Spinning Top’ candle following last week’s bullish coloured ‘Spinning Top’ candle. The index remains trading within the weekly chart’s long-term trading channel and 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 shift might eventually target the 50% and 61.8% fib levels of this two-year swing low move.

eurxweekly

Weekly Ichimoku: Price action continues to hold above thin weekly Cloud although this support base continues to broaden.

eurxweeklycloud

Daily: There were two bearish candles last week and note how the key 100 level has been effective resistance!

eurxdaily

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

eurxdailycloud

4 hr: Price chopped sideways to higher last week.

eurx4

4 hr Ichimoku Cloud chart: Price traded up into the 4hr Cloud last week and finished the week just above this resistance zone. The EUR$ is now divergent on the 4hr and daily charts suggesting EUR$ choppiness.

eurx4hrcloud

General:

  • The US$ is attempting a bullish breakout from a long-term Bull Flag pattern that has persisted for almost two years. The monthly candle close above 100 for November supports this bullish breakout but a test of the 100 could well evolve before any potential continuation.
  • Both FX Indices are back to being divergent. 

USDX: The US$ closed lower last week but still held above the key 100 level. The monthly chart’s Bull Flag pattern has triggered but a test of the 100 level could well evolve before any potential continuation. The daily chart shows a potential smaller Bull Flag forming up which would not surprise as price consolidates above this key 100 level.

It is worth noting that the US$ index closed lower despite the upbeat NFP headline result. I’m aware of the significance of the monthly chart’s Bull Flag breakout but still consider the index could be vulnerable given the global ZIRP and NIRP environment. Thus I suspect the 100 level will be keenly watched by many, and not just myself, as a barometer for the health of this index.

EURX:  The EURX closed slightly higher last week but remains below the key 100 level. Policy divergence continues to be in focus for the time being 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.

As noted last week, there are more pressing concerns for the single currency than just policy divergence issues with various elections and referenda set to take place across Europe. This weekend brings the Italian Referendum and the outcome of this could dictate whether the country opts to remains in the EU. There is also the Austrian election and so the next couple of weeks will be important for shaping the next major directional move for the EUR$.

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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