Last week: Much of last week’s trading was shaped by the PBoC Yuan devaluation, however, the choppy markets delivered a few short-lived TC signals: GBP/JPY= 70 and two signals that I missed on the GBP/AUD and GBP/NZD that both went for 200+ pips before sharply reversing.
US$ and Yellow Cards: My 18 yr old son got his first Yellow Card in Soccer yesterday. This came with just three school games left to play and after ten years of a clean record. I was a bit surprised but….not as much as the other parents sitting around me. It was a rather comical scene with a perpetuating echo of…..”Tom got a yellow card!….really?….no!…he couldn’t have….really?….Tom got a Yellow card?…really?….no….” and so on. Well, what does this have to do with the US$? I would suggest traders need to be prepared and….. expect the unexpected. Many believe the LONG US$ trade is a ‘shoe in’ when the Fed eventually lift US interest rates but there is alternative commentary suggesting that the US$ will shortly peak, even if US rates rise. For the time being though, the US$ index and EURX are still consolidating within weekly chart triangle patterns, despite the currency upheaval following last week’s PBoC activity. An update on the FX Indices can be found through this link.
GBP: The US$ continues to get a lot of attention but it is the GBP that holds increasing interest for me. IMHO…the GBP looks to be in a win/win situation. My thinking here is that if the Federal Reserve do end up increasing US interest rates this year, and even if the US$ continues higher with this, then the Band of England would most likely be next cab of the rank thereby helping to support the GBP. However, if the US interest rate increase is delayed at all, and the US$ weakens, then the GBP is likely to be supported here too. Therefore I am not at all surprised to see many GBP pairs trading at key S/R levels and I’m watching for any trend line breakouts here. Keep an eye on GBP pairs in the coming week with the release of GBP CPI and Retail Sales data.
EUR/USD: this is back up near the key 1.12 level. Any close and hold above this may suggest a move back up to test 1.18.
USD/CAD: take note of the bearish-reversal ‘Hanging Man’ candle printed here last week.
Gold: Gold has printed its first bullish weekly candle in seven weeks. Key support at $1,145 was broken back in July, the first break below this level since April 2010, and thus I won’t be surprised to see this region, at least, ‘tested’. Many traders will be looking to SHORT from any test of $1,145 and this may prove to be ‘the trade’ BUT I would urge caution because IF the US$ does continue to weaken then this would help to keep Gold supported. The $1,145 is a key level to keep in focus though in coming sessions. The other charts worth keeping an eye on are the Gold Miner ETFs. Two of these ETFs are starting to look like they might be leveling off and could put in a bit of a recovery effort:
GDX weekly: Market Vector Gold Miners ETF:
NB: I am away next weekend so updates from Fri 21st through until Monday 24th will be brief and few.
Stocks and broader market sentiment:
Stock indices have been mixed this week with the S&P500 and DJIA closing higher for the week but the NASDAQ, FTSE and DAX closing lower and with the Russell 2000 printing a bullish coloured indecision Doji for the week.
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:
S&P500 daily chart: The index closed below the psychological 2,100 level BUT is still above the daily trend line support. The possible bearish ascending wedge is still in play and so I’ll keep watching these trend lines:
Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. There has been a new bearish Tenkan/Kijun cross but this evolved IN the Cloud and so is deemed a ‘NEUTRAL’ signal. Price is back above the Cloud though and so traders need to watch for any bullish continuation and new Tenakn/Kijun bullish signal as if this forms above the Cloud it will be a strong signal. Any move and hold back below the Cloud though would support the current bearish signal:
SPY weekly chart (S&P500 ETF): there has been a new bearish Tenkan/Kijun cross on the weekly chart but this evolved above the Cloud and so is deemed a ‘weak’ signal. The last such bearish cross was back in June 2012, although, it was short lived. Any new bullish cross here however would be a ‘strong’ signal and the last ‘strong’ signal gave $75 in a rally from $135 up to over $210:
S&P500 monthly chart: a break of the monthly support trend line. The monthly trend line remains intact but a break of this support level would suggest to me of a more severe pull back or correction. I am still seeing divergence on the monthly chart for now though.
Russell 2000 Index: this small caps index is considered a US market ‘bellwether’ and has again closed the week below the key 1,220 level but with a bullish coloured weekly Doji candle.
VIX Index: The ‘Fear’ index is still below the 14 level although it printed a bullish coloured ‘Doji’ candle.
Oil: closed with a bearish candle for the week. Is a ‘Triple Bottom’ building on the weekly chart?
Trading Calendar Items to watch out for:
- Mon 17th: JPY Prelim GDP.
- Tue 18th: AUD Monetary Policy Meeting Minutes. GBP CPI. USD Building Permits.
- Wed 19th: NZD GDT Price Index & Inflation Expectations. USD CPI, Core CPI & FOMC Meeting Minutes.
- Thurs 20th: JPY Monetary Policy Statement & Press Conference. CAD Wholesale Sales. USD Unemployment Claims & Fed Philly Manufacturing Index.
- Fri 21st: Day 1: Jackson Hole Symposium. CNY Caixin Flash Manufacturing PMI. EUR French & German Flash Manufacturing PMI. CAD Core CPI and Core Retail Sales.
- Sat 22nd: Day 2: Jackson Hole Symposium.
E/U: The E/U chopped higher last week and traded up to test the key 1.12 level. This is a major S/R zone for the E/U as it represents the 61.8% fib of the 2000-2008 swing high move and will be the level to watch over coming sessions. The 61.8% Fibonacci level on any chart is a major one as it often marks a period of inflection: a close above marking a change of trend but a respect marking continuation. Many traders will be looking to SHORT from this level and doing so throughout last week would have yielded a handy 100 pips. For the moment though, price action is consolidating below this key level and forming up into a mini Bull Flag.
Traders need to keep an eye on the weekly chart’s Flag trend lines:
- Any new trend line breakdown and continuation could signal the start of a weekly-chart Bear Flag breakdown worth up to 3,500 pips. Keep an eye on the lower flag trend line, and also the recent low down near 1.045, in case they offer up any support.
- Any breakout above the top trend line could signal a basing pattern here for the E/U, even if only temporary. I would then be looking for a test of the other major S/R zone at 1.18.
Descending triangle on the monthly chart: There is still an overall bearish pattern in play on the E/U monthly chart: a 4,000 pip bearish descending triangle breakdown on the monthly chart. The descending triangle pattern is a bearish continuation pattern and has a base at around the 1.18 level. The height of this triangle is about 4,000 pips. Technical theory would suggest that the bearish breakdown of this triangle below 1.18 might see a similar move. It is worth noting that this would bring the E/U down near 0.80 and to levels not seen since 2000/2001!
Price is trading above the Cloud on the 4hr but below the Cloud on the daily, weekly and monthly charts.
The weekly candle closed as a bullish candle.
- I’m watching for any new TC signal on this pair, the 1.12 level and the weekly chart’s Bear Flag trend lines.
E/J: The E/J chopped higher last week and broke up and out from the triangle pattern yielding up to 200 pips.
I’m still seeing a potential bullish ‘inverse H&S’ pattern building on the monthly chart.
Price is trading above the Cloud on the 4hr, daily and monthly charts but below the Cloud on the weekly chart.
The weekly candle closed as bullish candle.
- I’m watching for any new TC signal on this pair.
A/U: The A/U was whipped around last week with the PBoC Yuan devaluation but continued to trade either side of the recent S/R zone at 0.735. Price action has also formed up into a revised descending trading channel.
The hold below the 0.755 level is keeping the prospect of a major 1,700 pip Bear Flag in focus though.
There is major support below the current level of the A/U and this is coming from three regions. Thus, if the A/U is going to try and carve out any base and bounce then this seems like the place to do it. The three support regions include:
- A monthly support trend line:
- The 0.72 level: near the 61.8% fib of the major swing high move from 2001 to 2011.
- The 0.71 level: near the 78.6% fib of the 2008-2011 swing high move.
Price is trading above the Cloud on the 4hr chart but below the Ichimoku Cloud on the daily, weekly and monthly charts.
The weekly candle closed as a bearish coloured Doji candle.
- I’m watching for any new TC signal on this pair and the descending channel trend lines.
G/U: The Cable finished higher for the week and is starting to look bullish. It continues testing the upper trend line of a symmetrical triangle pattern but I’m still waiting for momentum to build along with any breakout. There is little momentum just yet on either the 4hr, daily or weekly time frame. Next week brings GBP CPI and Retail Sales data and maybe one or other of these may trigger a momentum-based breakout.
Weekly chart H&S: There is still a possible bearish H&S pattern forming on the weekly chart but the failure to break below the ‘neck line’ is holding this pattern off the time being. The height of the pattern is about 2,400 pips and suggests a similar move lower with any break and hold below the ‘neck line’. I would consider that any close and hold back above 1.60 would void this pattern.
Price is trading above the Cloud on the 4hr and daily chart, in the bottom of the Cloud on the weekly chart and in the Cloud on the monthly chart.
The weekly candle closed as a bullish, essentially ‘engulfing’, candle.
- I’m watching for any new TC signal on this pair and the triangle trend lines.
Kiwi: NZD/USD: The Kiwi was also whipped around by the PBoC activity but price action continues to form up a weekly-chart Bear Flag although, this is resting above 0.64 support.
I’m still on the lookout for any support from this 0.64 level as this is near the key 61.8% fib of the 2008-2011 swing high move.
‘Double Top’ breakdown on Monthly chart? The monthly chart still reveals a possible ‘Double Top’ pattern with a neck line at 0.735. The monthly candle close below this level for January suggested a possible 2,000 pip bearish follow through move as this is the height of the ‘Double Top’. This bearish move has yielded over 800 pips so far.
Price is trading below the Cloud on the 4hr, daily, weekly charts and monthly charts.
The weekly candle closed as a bearish candle.
- I’m watching for any new TC signal on this pair, the revised flag trend lines and the 61.8% fib level near 0.64.
The Yen: U/J: The U/J chopped up and down last week. It did rally early in the week and appeared to trigger a triangle breakout but the PBoC activity chopped this pair around too and price promptly fell back to test the key 124 level.
Price is trading in the Cloud on the 4hr chart but above the Cloud on the daily, weekly and monthly charts.
The weekly candle closed as a bullish coloured Doji candle reflecting some indecision here.
Monthly Chart Bullish Cup’ n’ Handle pattern: There looks to be a new bullish Cup ‘n’ Handle forming up on the monthly chart. The theory behind these patterns is that the height of the ‘Cup’ pattern is equivalent to the expected bullish move from the ‘handle’ breakout. The height of the Cup for the U/J weekly chart is around 4,800 ~ 4,900 pips. This may seem like a massive move but the longer term chart below shows this move to be reasonable as it would take the U/J up near the 50% fib of the 1985-2012 swing low move.
- I’m watching for any new TC signal on this pair, the daily chart triangle and the 124 level.
USD/CAD: The USD/CAD chopped back down to test the key 1.30 level last week. The significance of this region can be best seen on the monthly chart. Whilst the USD/CAD closed the week above this key S/R zone the bearish reversal weekly candle should give traders pause to be a bit cautious here.
Whilst I’m still seeing a ‘Cup’ pattern on the monthly chart this does bring the potential of extended choppiness around this 1.30 region so as to create the ‘Handle’.
Triangle breakout target: The Loonie had previously broken up and out from a major monthly chart triangle pattern that could deliver up to 2,500 pips. This 2,500 pip figure is evaluated from the height of the triangle. I have used the triangle height from the beginning of the bull trend line, as shown in the monthly chart below. The height of the triangle is around 2,500 pips and, thus, this would be the expected move from any breakout action. Extrapolating a bullish move from this triangle places price up at the 61.8% fib level. These fibs levels are popular targets in retracement moves and so this adds some confluence to this as a possible target. The bullish move has given over 2,100 pips so far.
Monthly Chart Cup ‘n’ Handle? The monthly chart now also shows a possible bullish Cup ‘n’ Handle pattern forming up under the 1.30 level. This is worth keeping an eye on as the pattern would be worth up to 3,500 pips if it was to evolve as this is the height of the ‘Cup’. The interesting point is that the target for this pattern would put price up at the highs reached back in 2002 and this is equal to a 100% Fib retracement of the 2002-2007 bear move.
Price is now trading in the Cloud on the 4hr chart but above the Cloud on the daily, weekly and monthly charts.
The weekly candle closed as a bearish coloured Doji but with a ‘Hanging Man’ appearance. These bearish-reversal patterns appear at key S/R levels and the 1.30 region is certainly that for the USD/CAD.
- I’m watching for any new TC signal on this pair and the 1.30 level.
GBP/AUD: This pair chopped up and down last week as another victim of the PBoC activity but managed to get back its bullish weekly-candle mojo. This follows on from last week’s bearish candle that was the first in 13 weeks.
I have mentioned over recent weeks that I’d be looking for any signs of a pullback here to test either the monthly 200 EMA or the 2.07 major S/R level. Now that the monthly 200 EMA has been tested I’m watching for further tests of this region as well as the 2.07 region. There is the look of a ‘Cup’ pattern on the monthly chart and so we could see some choppiness around this 2.07 region as a potential ‘Handle’ forms up. This choppiness could still deliver decent moves though within these swings and this was the case during last week with one TC signal giving over 200 pips before reversing.
Price is now trading in the top edge of the Cloud on the 4hr chart but above the Ichimoku Cloud on the daily, weekly and monthly charts.
The weekly candle closed as a bullish coloured, essentially ‘Inside’, candle reflecting some indecision here.
- I’m watching for any new TC signal on this pair.
GBP/NZD: The GBP/NZD also chopped up and down last week in reaction to PBoC activity but it closed with a large bullish candle. The monthly chart’s bear trend line has been strong resistance here but price action has closed up just under this major level last week and, thus, this chart is shaping up to be one of the more exciting pairs to watch next week.
It is worth noting though that any 61.8% fib pullback here would bring price back down to the previous breakout and S/R region of 2.10 ( see on the weekly chart).
The GBP/NZD is now back trading above the Cloud on the 4hr, daily, weekly and monthly charts.
The weekly candle closed as a large bullish candle.
Note the revised Flag trend lines on the 4hr chart.
- I’m watching for any new TC signal and the monthly chart’s bear trend line.
Silver: Silver traded higher last week on the back of the weaker US$ although it dipped a bit on Friday as the US$ recovered following upbeat US PPI data. It closed the week bullish though and back above the key $15 S/R level and any continued US$ weakness may help to keep it supported. This bullish recovery is bringing the previous S/R region of $16 back into focus.
Silver is still trading above the Cloud on the 4hr chart but below the Cloud on the daily, weekly and monthly charts.
The weekly candle closed as a bullish candle.
Any move back below $15 would be bearish and would bring the $11 and $9 levels in focus. $11 is previous S/R and the $9 area is the 100% fib level.
- I’m watching for any new TC signal.
Gold: As with Silver, Gold traded higher last week on the back of the weaker US$ and closed with a bullish candle and back above the $1,100 level.
I still expect that many traders might be looking to SHORT Gold with any test back up at the key $1,145 though as this has been the first hold below this region since March 2010. I’d urge some caution though because if the US$ continues to weaken then this could help to keep Gold supported, even beyond $1,145, but I’d certainly expect to see some reaction at this key S/R region.
The hold below $1,145 for now though is bearish and suggests that a deeper pull back could be in store for Gold. Bearish targets below $1,145 and $1,100 include the $1,000 psychological level and, then, the 78.6% fib near $950.
Gold is trading above the Cloud on the 4hr chart but below the Cloud on the daily, weekly and monthly charts.
The weekly candle closed as a bullish candle.
- I’m watching for any new TC signal and the $1,145 level.