Last week: I noted early last week how given that the FX indices were back to being divergent then some choppiness off longer time frame charts might be expected. These periods are often accompanied by fewer TC signals off the 4hr charts and better trading off shorter time frame charts during the US session and this is what we got.
I am not expecting to see too many decent trend signals before the release of next Wednesday’s FOMC. There were only four TC signals until Friday and these were choppy: Silver = -30 (closed), EUR/AUD = 290 (closed), USD/CAD = 190 (closed) and GBP/USD = 80 (closed). New TC signals came in late on Friday on the USD/CAD, GBP/AUD and EUR/AUD.
Much of the movement last week was shaped by the fall with Oil and it closed the week at the $35 handle. This prompted some ‘flight to safety’ movement out of stocks and into the Yen amid concern about the impact lower Oil pricing has on inflation and, thus, on global growth. The rout accelerated on Friday following an IEA report that warned further about oversupply and falling demand. Commodities, in general, remain under pressure with the strong US$ but that could all change with FOMC next week; whether for the better or the worse remains to be seen though!
This week:
The major economic event for the coming week, perhaps even the year, is Wednesday’s December FOMC meeting. This just might determine the next lengthy pathway for the US$ which, in turn, could dictate the path of many FX pairs as well as stocks and commodities. The content and tone of this FOMC statement will be in focus here: a rate hike that is accompanied with hawkish Fed commentary would be expected to lift the US$, however, a rate hike with a dovish or cautionary tone or a ‘no rate hike’ decision would be expected to be bearish for the US$. I would urge caution holding open trades around this economic event as I would expect to see spike action on charts before the next trend, if any, is undertaken.
The US$ index continues to retreat from the key 100 level and a bearish ‘Double Top’ is still threatening to usurp the Bull Flag breakout. Next week’s FOMC might dictate which pattern trumps here and a review of the FX indices can be found through this link.
Chinese Industrial Production data: was released on Saturday and came in much better than expected. This may help to boost the AUD$ next week.
Oil: The rout with Oil price rattled global markets last week and, if the $40 threshold gives way for the month of December, then I would expect that a test of the 2009 low near $33.50 could be on the cards. If so, then this would mean a fair bit more pain, not only for this commodity, but for commodity currencies (eg AUD$), oil related stocks and the broader markets as well. Oil price weakness helped to support two TC LONG signals on the USD/CAD this week.
AUD$: the AUD$ was hit hard on Friday with the worsening rout on Oil and this triggered some new, but very late, TC LONG signals on the GBP/AUD and EUR/AUD. These signals may be undermined though by the better than expected Chinese data that was released on Saturday after the market close and so caution will be needed with these.
Commodities: Commodities have been savaged with the stronger US$ and weakened demand. Many are trading at extreme low levels ahead of Wednesday’s FOMC event offering support trend lines worth watching. I wrote an article earlier today with charts of a number of different commodities and this can be found through the following link.
NB: I am away for 2 weeks from this coming Friday 18th December and not back until after the New Year. Updates during this period will be brief and few.
Stocks and broader market sentiment:
Stocks had a bad week due to the Oil rout, concern about global growth and, I suspect, there would have been some selling before next week’s FOMC event. However, I continue to see the S&P500 Death Cross head towards closing off and wonder if we will have similar price action as last time to follow on here?
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 just above the psychological 2,000 level.
S&P500 weekly: this still has a bit of a Bull Flag appearance and traders need to keep watch of the 2,135 level for any breakout or respect. The weekly candle closed as a bearish candle but it still looks to be consolidating within the Flag for the time being.
Ichimoku S&P500 daily chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. The bullish Tenkan/Kijun cross remains open (only just) but price is back within the Cloud and only just above the 2,000 level:
Ichimoku S&P500 weekly chart: the weekly candle closed as a bearish candle and back within the weekly Cloud. I would want to see a sustained bearish move below the Cloud to support bearish sentiment. Note how the weekly Cloud remains aligned along the key 2,000 level. It is difficult to see but the bullish Tenkan/Kijun cross remains open here:
S&P500 monthly chart: a break of the monthly support trend line. The monthly trend line remains intact for now but a break of this support level would suggest to me of a more severe pull back. Bearish divergence on the monthly chart had warned of recent weakness and I, like the Elliott Wave indicator, had been looking for a test of the 1,600 region but this might not evolve.
Russell 2000 Index: this small caps index is considered a US market ‘bellwether’ and does have a bit of a potential bearish H&S brewing but any new close and hold back above 1,220 would void this. The weekly candle closed as a bearish coloured candle but still above 1,080 support.
VIX Index: The ‘Fear’ index has printed a large bullish weekly candle but is still below the 30 threshold….. for now.
Copper: closed with a bullish coloured ‘Spinning Top’ candle BUT still above the key 2.0 level.
Oil: I’m now seeing a ‘Double Bottom’ here with the 2009 low near 33.50 as the baseline. The weekly candle was bearish BUT I expect that this $33.50 level might be tested IF the December monthly candle closes below $40.
Trading Calendar Items to watch out for:
- Sat 12th: CNY Industrial Production: this came in better than expected.
- Mon 14th: nil
- Tue 15th: AUD Monetary Policy Meeting Minutes. GBP CPI. EUR German ZEW Economic Sentiment. CAD Manufacturing Sales. USD CPI. NZD GDT Price Index. CAD Gov Poloz speaks.
- Wed 16th: EUR French & German Manufacturing PMI. GBP Employment data. USD Building Permits & FOMC.
- Thurs 17th: NZD GDP. EUR German Ifo Business Climate. GBP Retail Sales. USD Philly Fed Manufacturing Index & Weekly Unemployment Claims.
- Fri 18th: NZD ANZ Business Confidence. JPY Monetary Policy Announcement & Press Conference. CAD Core CPI.
Forex:
E/U: The E/U chopped a bit higher following last week’s ECB-inspired bull run but it may continue to hold steady until after next week’s FOMC. This event may define whether the recent bull run here was just a temporary ‘short squeeze’ or the start of a more lengthy reversal attempt.
The key levels to keep monitoring here include:
- 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. This also happens to be near the recent Bear Flag trend line and so would be an obvious target for any continuation move. It also happens to be the 61.8% fib of the recent daily chart-based swing low move.
- 1.18: this is major long-term S/R level (seen on the monthly chart)
- 1.225: this is near the 50% fib of the recent weekly-chart swing low move and also near the monthly chart’s triangle trend line.
- 1.26: this is near the 61.8% fib of the weekly chart’s swing low move.
- 1.045 /1.040: the recent & longer term support levels (seen in monthly chart below).
Price 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 on this pair and the 1.12 level.
E/J: The E/J chopped along, sideways to lower, under the 134 level and a triangle trend line all week and also seems to be waiting for next week’s FOMC.
I’m still seeing the monthly Cloud’s bearish Tenkan/Kijun cross and note that these crosses have been few and far between and worth noting. However, I am also noticing how this recent cross has not been accompanied by any ADX move above 20 and, so, there seems to be a point of difference here with this particular cross:
Price is trading in the Cloud on the 4hr chart, below the Cloud on the daily & weekly charts but above the Cloud on the monthly chart.
The weekly candle closed as a bearish coloured ‘Inside’ candle which isn’t too surprising after last week’s large bullish candle.
- I’m watching for any new TC signal on this pair and the 134 level.
A/U: The A/U chopped lower to start the week but got a boost on Thursday from the much better than expected AUD employment data. It fell back heavily on Friday though in sympathy with the accelerating rout on Oil and, if this Oil rout continues then, further AUD$ weakness would be expected as well.
Price remains above the recently broken 14-month bear trend line for now though and below the 0.74 level ahead of next week’s FOMC meeting. The outcome of this meeting could determine whether the A/U continues on it recent bullish recovery effort or retreats but the 0.74 looks to be shaping up as the ‘line in the sand’ level to watch. Traders also need to watch for any impact on Monday from the better than expected Chinese data that was released over the weekend.
Price is trading below the 4hr Cloud, just above the daily Cloud but below the Cloud on the weekly and monthly charts.
The weekly candle closed as a bearish ‘engulfing’ candle.
- I’m watching for any new TC signal on this pair and the 0.74 level.
A/J: The A/J broke below the key 89 level last week to match the sentiment seen across on the U/J and with stocks. Despite the upbeat AUD employment data it was the Oil rout and accompanying US$ weakness and ‘flight to safety’ Yen strength that all combined to put pressure on this pair.
Price pulled back below the triangle trend line and down to the 50% fib of the recent swing high move. However, a deeper pullback to the 61.8% fib could be expected here as this is near the monthly 200 EMA. A close and hold below this region would be a bearish signal and suggest more weakness ahead. Any hold and bounce back up from this level though would suggest a trip back to test the 89 level. The 89 remains the level to keep in focus though as this is a major demarcation zone on the weekly and monthly charts. I’m still watching for any move back above 89 though and to see if this is matched by a move with stocks.
Price is trading below the Cloud on the 4hr chart, above the Cloud on the daily chart and below the Cloud on the weekly and monthly charts.
Traders also need to watch for any impact on Monday from the better than expected Chinese data that was released over the weekend.
The weekly candle closed as a large bearish engulfing candle.
- I’m watching for any new TC signal on this pair and the 89 level.
GBP/USD: The Cable dropped below 1.50 support again last week following Tuesday’s weaker than expected Manufacturing Production data. This move was short lived though as US$ weakness provided some support here and price rallied back above this 1.50 S/R level and up through a recent bear trend line whilst also triggering a new TC LONG signal. Price even held up fairly well despite some dovish concern expressed at Thursday’s interest rate announcement about wages and inflation. Friday’s US$ weakness helped this to move up to just under the 1.525 S/R level where it settled in for the weekly close although a new TC LONG signal is trying to form here.
Price remains above the recently broken 5 week trend line but still trading within a larger 1,600 pip triangle pattern which is best viewed on the daily or weekly chart. However, this monthly chart below, that has more data than my MT4 charts, shows there is an even larger monthly triangle pattern in formation:
Price is trading above the Cloud on the 4hr chart but below the Cloud on the daily, weekly (just) and monthly charts.
The weekly candle closed as a bullish candle.
- I’m watching for any new TC signal on this pair and the 1.525 level.
GBP/JPY: The GBP/JPY chopped lower to start last week weighed early by some GBP$ weakness and ‘flight to safety’-inspired JPY strength. Price punctured the lower triangle TL a couple of times but the 184 level proved to be strong support, yet again. It bounced up off the 184 level three times last week giving 80+ pips with each turn!
The daily chart still shows a decent triangle forming up that is worth a possible 1,600 + pips on any breakout move. I have relaxed the bottom trend line to capture this latest support.
Price is trading below the Cloud on the 4hr and daily chart but above the Cloud on the weekly (just) and monthly charts.
The weekly candle closed as a small bearish, but ‘engulfing’, candle.
- I’m watching for any new TC signal on this pair, the 184 level and the daily-chart’s triangle pattern.
Kiwi: NZD/USD: The NZD/USD closed only slightly lower last week and the weekly chart still shows two potential longer-term patterns; one bullish and one bearish. I’m seeing either a potential Bear Flag or a basing-style bullish ‘Inverse H&S’ forming on the weekly chart AND with no clear winner just yet.
The RBNZ cut interest rates during last week but the less dovish than expected commentary that came with this has helped to keep this pair supported. I do suspect there might be a bit of scepticism about continuing US$ strength which is also helping this pair to hold up but next week’s FOMC might change all this and help to develop one or other of the weekly chart patterns.
The weekly chart also shows a looming, 18-month bear trend line and this may come into greater focus in the coming week with FOMC for either a possible breakout or rejection move. I note that any bullish breakout above this bear trend line might target the 50% of the 2014-2015 swing low move as this is also near a strong level of previous S/R at 0.75.
Other bullish targets on any bear trend line breakout, and on the way to 0.75, include the 0.70 and 0.71 levels. Adding fibs to the recent swing low move from the daily chart shows the 0.70 region near the 50% fib and, also, near the top trend line of the Flag pattern and so this could be a target for any bullish continuation. The 0.71 level is near the 61.8% fib and is also a region of previous S/R so is worth watching too.
The monthly chart below has a bit more data than my MT4 charts and shows how this weekly bear trend line is helping to form a triangle pattern on the monthly chart. This bear TL will be the one to watch in this coming FOMC week:
Price is trading above the Cloud on the 4hr and daily charts but below the Cloud on the weekly and monthly charts.
The weekly candle closed as a bearish coloured Doji and ‘Inside’ candle reflecting some indecision here.
- I’m watching for any new TC signal on this pair, the 0.70 level, the monthly and weekly chart’s bear trend line and the daily/weekly chart’s Flag trend line.
The Yen: U/J: The drop in Oil price, with related concern about this lowering the inflation outlook and impact on global growth, helped to trigger some ‘flight to safety’ Yen buying last week which shook the U/J out of its recent trading channel. Price only fell as far as the 50% fib of the 4hr chart’s recent swing high move though before it stabilised somewhat.
I still consider the 124 level to be the one to watch in the lead up to next week’s FOMC. I’m expecting that this event might trigger either a breakout or clear rejection form this key S/R region.
Monthly Chart Bullish Cup’ n’ Handle pattern: There looks to be a 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. Note the 101.5 level on the other monthly MT4 chart though. Any pullback down to this level, apart from helping to form up a huge Handle for the Cup ‘n’ Handle, would also help to develop a bullish ‘inverse H&S’ pattern.
Price is trading below the Cloud on the 4hr chart, above the Cloud on the daily chart (just), in the top edge of the weekly Cloud but above the Cloud on the monthly chart.
The weekly candle closed as a bearish, essentially ‘engulfing’, candle.
- I’m watching for any new TC signal on this pair and the 124 level.
USD/CAD: The USD/CAD was a beneficiary of the lower Oil price last week and it rallied up through significant, monthly-based 61.8% fib resistance and triggered a new TC signal that gave 190 pips before closing off. Another TC ‘LONG’ signal triggered on Friday though with the worsening rout on Oil and this signal is up 100 pips.
Monthly Chart Cup ‘n’ Handle? The monthly chart shows a developing bullish Cup ‘n’ Handle pattern with a neck line at 1.30. This is worth keeping an eye on as the pattern would be worth up to 3,500 pips 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 trading above the Cloud on the 4hr, daily, weekly and monthly charts.
The weekly candle closed as a large bullish candle.
- There is an open TC LONG signal here.
GBP/AUD: This pair reclaimed 2.07 early last week and held this level in a week of more GBP$ strength than AUD$ strength. This 2.07 level was tested on two subsequent occasions though but price rallied on Friday to trigger a new TC signal, that has already yielded 150 pips, and to finish well above this 2.07 level. In fact, price is back up near an upper Flag trend line that has been in place for four months and this looks to be the level to watch in coming sessions.
Two bullish patterns? I’m still seeing two possible bullish patterns on the monthly chart. Firstly, the choppy daily chart Flag action continues to support a ‘Cup’ pattern with a neck line near 2.07. Price is currently trading under the upper edge of the ‘Handle’ of this pattern. However, any resumption of bullish momentum could bring an alternative monthly chart pattern into focus though. Any continued push up to the 2.40 region, near the monthly chart’s 61.8% fib, would help to form up a bullish ‘Inverse H&S’ pattern. I would then be looking for a pullback back down to the ‘Shoulder’ region of 2.07 to complete this pattern.
Price is trading below the Cloud on the daily chart but above the Cloud on the 4hr, weekly and monthly charts.
The weekly candle closed as a bullish engulfing candle.
- There is a new TC LONG signal here BUT traders also need to watch for any impact on Monday from the better than expected Chinese data that was released over the weekend.
EUR/AUD: Price continued to rally here last week and the EUR/UAD actually broke up through an eleven-week bear trend line and triggered a new TC signal that gave 290 pips before closing off. However, AUD$ weakness with the Oil rout on Friday triggered another TC ‘LONG’ signal here; on the second last candle for the week.
The daily and weekly charts show that price is now under another bear trend line that dates back almost four months. This bear trend line is up near the 50% fib of the weekly chart’s most recent swing low move and also near the key 1.55 S/R level. This is obviously a major level for this pair to negotiate, should it make it up that far. I wrote a separate article about this pair during the week that can be found through this link. The significance of the .55 level can be seen on this monthly chart below:
Price is trading below the Cloud on the daily chart but above the Cloud on the 4hr, weekly and monthly charts.
The weekly candle closed as a large bullish candle.
- There is a new TC LONG signal here BUT traders also need to watch for any impact on Monday from the better than expected Chinese data that was released over the weekend.
GBP/NZD: The GBP/NZD bounced up off the recent S/R level of 2.24 again last week but visited this level on four occasions before finishing the week above this support.
The monthly chart shows how price action continues to consolidate under a multi-month triangle trend line with a horizontal S/R level at 2.30 also still above current price and these levels would be obvious targets for any bullish continuation. However, any resumption of bearish momentum below 2.24 might target the weekly chart’s 61.8% fib down near 2.20 and, after that, the previous breakout and S/R region of 2.10 which happens to be near the weekly 200 EMA.
The GBP/NZD is trading in the Cloud on the 4hr chart, below the Cloud on the daily chart but above the Cloud on the weekly and monthly charts.
The weekly candle closed as a bullish-reversal ‘Inverted Hammer’ candle off this 2.24 support suggesting there may be upside to come here. It also closed as an ‘Inside’ candle though too suggesting indecision.
- I’m watching for any new TC signal on this pair and the 2.24 level.
Silver: Silver closed lower last week and the TC signal from last Friday closed for a loss of 30 pips.
Price remains below the $15 S/R level but still within a potential bullish-reversal descending wedge. Next week’s FOMC will be hugely important here and will most likely determine how the metal reacts at this major wedge trend line support: any continued US$ strength would put pressure on Silver to the downside, however, US$ weakness could help to develop the bullish wedge pattern.
Any sustained hold below $15 after FOMC would be bearish though and would bring the $11 and $9 levels back into focus. $11 is previous S/R and the $9 area is the 100% fib level.
Silver is trading below the Cloud on the 4hr, daily, weekly and monthly charts.
The weekly candle closed as a bearish candle.
- I’m watching for any new TC signal, the wedge trend lines and the $15 level.
Gold: Gold closed lower last week and, whilst it continues to hold above the support of the weekly chart’s wedge trend line, it remains below the key S/R level of $1,100.
I’m still seeing a bullish-reversal descending wedge here as well though and, like with Silver, next week’s FOMC will most likely dictate which way Gold heads from here.
The weekly hold below $1,100 is bearish and, if this continues after FOMC, I will watch for any bearish break below the wedge trend line near $1,050 and then the following levels: the $1,000 psychological level followed by the monthly chart’s 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 bearish coloured ‘Inside’ candle reflecting indecision here.
- I’m watching for any new TC signal, the wedge trend lines and the $1,100 level.
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