Will USD weakness shape FX this week? Trade Week Analysis by Mary McNamara

Last week:  It was yet another volatile week for trading which again limited the potential for trend signals off the 4hr chart time frame. Trading off shorter time frame charts during the US session continues to offer higher probability and lower risk trading opportunities and this was especially so with Gold, Silver and the E/U.

Gold: 30 min chart: good trading Wed and Fri:

Gold30min

EUR/USD: good US session trading:

EU30min

This week:

The USDX triangle breakout continues and the index has held above the broken triangle trend line. Technical theory would suggest bullish continuation from this point but price action has stumbled a bit at the next resistance zone. Any pull back here, even if only temporary, will have implications for a number of FX pairs and needs to be monitored. A review of this index can be found through this link.

There isn’t a whole lot of high impact data scheduled for next week. Better than expected Chinese Trade Balance data was released over the w/e however the data revealed that both exports and imports were reduced in volume and so this could be taken as a negative for sentiment. Care will be needed at market open to see how the A/U and Kiwi react to this conflicting result.

Gold and Silver both managed to hold above key support levels last week and any continued USD weakness will only help to add further support.

Bear Flags: have been setting up on the E/U, A/U and Kiwi for some weeks and these pairs have closed below key support levels. Traders need to be wary of any developing USD weakness though as this could undermine these moves.

Events in the Ukraine and the Middle East, as well as with Ebola, continue to have the potential to undermine any developing ‘risk’ appetite and need to be monitored.

Stocks and broader market sentiment:

Stocks consolidated a bit last week following the significant gains of the week before. The the S&P500 and DJIA printed bullish weekly candles but the NASDAQ and Russell 2000 printed bearish coloured Doji candles. The Russell 2000 ‘small caps’ index has held up and out from the ‘Bull Flag’ breakout and the NASDAQ is consolidating under major resistance but looking like it could make a bullish breakout in the near future.

I am still seeing divergence on the monthly S&P500 monthly chart though and whilst this might just be warning of a pause, as the index navigates these new highs up at the 2000 region, the chance of a pullback cannot be ruled out either. There has not been any real deep pull back since the break up through the 1,577, 1,600, 1,700 and 1,800 levels and the major break of the 1,577 level was only tested once. 

Thus, with all of this, 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 is back above the previous daily trend line and still above the key 2,000 level. I would not be surprised to see the 2,000 level tested though at some stage.

S&Pdaily

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. There has been a recent bullish Tenkan/Kijun cross and price is trading above the Cloud.

S&PdailyCloud

S&P500 monthly chart: a break of the monthly support trend line (see monthly chart). The monthly trend line remains intact. 

S&Pmonthly

Russell 2000 Index: this small caps index is a bit of a US market ‘bellwether’ and I see the 1,080 level as key support here. The index has held above this level and up and out from a ‘Bull Flag’ breakout:

RUTweekly

VIX Index: this recently broke up and out of a descending triangle pattern but is now back below the trend line and below the 14 level.

VIXweekly

Bonds: The bond ETF remains above the triangle breakout:

TLTweekly

Oil: Oil has closed below the key $80 support level. Any new USD weakness may help to lift commodity prices though:

CLweekly

Trading Calendar Items to watch out for:

  • Sat 8th: CNY Trade Balance (headline result was better than expected but exports and imports were lower).
  • Mon 10th: CNY CPI.
  • Tue 11th: AUD NAB Business Confidence. French Bank Holiday.
  • Wed 12th:  USA & CAD Bank Holiday. NZD RBNZ Financial Stability Report. GBP Employment data, BoE Gov Carney Speaks & Inflation Report.
  • Thurs 13th: CNY Industrial Production. USD Unemployment Claims.
  • Fri 14th: EUR French & German Prelim GDP. CAD Manufacturing Sales. USD Retail Sales & Prelim UoM Consumer Sentiment.
  • Sat 15th & Sun 16th:  G20 meetings.

Forex:

E/U: The E/U chopped around either side of the 1.25 support level as it waited for ECB rate news. ECB news resulted in this pair falling over 130 pips below this support but it managed to claw some of its way back towards the end of the week.

I am still seeing a Bear Flag building here and the 1.25 level remains the ‘line in the sand’ level for me as explained below. Price has closed the week below 1.25, which supports the Bear Flag, but I’ll be cautious to start the week as any continued USD weakness could see this pair pull back even further.

Bear Flag:  The daily chart shows the developing ‘Bear Flag’ on the E/U. The ‘Flag Pole’ of this pattern is about 1,000 pips. This is minimum target as I have only measured the daily chart’s trading channel. Thus, technical theory would suggest a continuation move of at least about 1,000 pips. The whole number 1.26 remains as decent support here for now and I’ll continue watching to see if this level can hold. A break of this 1.26 level gives a 100 pip trip down to previous lows near 1.25 and a break of both levels would suggest that a move to 1.18 support, and possibly beyond, might be underway. Personally, I will be watching to see if the E/U holds below 1.25 to confirm the ‘Bear Flag’ break and then looking for a possible target down near 1.18 and then 1.15. 

Traders need to remember that this pair is also trading within a bearish descending triangle pattern on the larger-scale monthly chart. 

Descending triangle 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 any bearish breakdown of this triangle at 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 still trading below the Ichimoku Cloud on the 4hr, daily, weekly and monthly charts which is bearish.

The weekly candle closed as a bearish coloured ‘Spinning Top’ candle reflecting some indecision here.

  • I’m watching for a new TC signal on this pair and the Bear Flag with the 1.25 level.            

EUmonthly EUweekly EUdaily EU4

E/J: The E/J made a bullish breakout from the weekly chart’s triangle pattern early last week. I had suggested traders should watch for any such breakout and this move alone yielded up to 360 pips!  I had been stating for some weeks now that this triangle pattern was giving the weekly and monthly charts a bit of a ‘Bull Flag’ appearance and this is exactly what has evolved. BTW: The previous bullish wedge breakout has now given up to 770 pips.

Price action stalled towards the end of the week near the 143 level and this consolidation action is now taking on a bit of a ‘Bull Flag’ appearance on the 4hr chart. I’m on the lookout for a bit of a pullback though given the lengthy bull run this pair has been on. Any USD weakness might result in the U/J pulling back which, in turn, could weaken this pair, even if only temporarily. Fib levels on the recent bull run show possible targets as the 38.2% fib near the weekly chart’s triangle trend line and just above the key 140 S/R level. The 61.8% fib is much deeper but near the daily 200 EMA which has been a strong S/R level for this pair. The monthly pivot is nearby there too and this is around the 138 region 

Price is now trading above the Cloud on the 4hr, daily, weekly and monthly charts. The November and December candles were the first to close above the resistance of the monthly Ichimoku Cloud since 2008. Check out the monthly Cloud chart below. The E/J made its last break back above the Cloud in 2003 and the consolidation pattern following that breakout is very similar to the consolidation we’re seeing now. Note how, back then, price eventually rallied and I wonder if history will repeat itself here?

EJmonthlyCloud

The weekly candle closed as a bullish candle.

  • I’m watching for any new TC signal on this pair and the 140 and 138 levels.

EJmonthly EJweekly

EJdaily

EJ4

A/U: The A/U gapped lower on the back of some weaker than expected Chinese data released over the previous w/e. It gapped below the Bear Flag trend line and never recovered back above this. USD strength continued throughout the week and this, along with the falling Gold price, resulted in the A/U falling through key 0.865 support on Wednesday. Price recovered somewhat by the end of the week but still closed just below the key 0.865 level. Better than expected Chinese Trade Balance data was released over the w/e however and this may help to boost the AUD at market open so market sentiment needs to be monitored.

The 0.865 remains the ‘line in the sand’ for me with the Bear Flag. The 0.865 level underpins the previous swing low printed back in June 2014 and, prior to that, this level was last printed back in July 2010. The weekly close below this support is bearish and suggests the Bear Flag has started BUT I will be cautious given the USD weakness that crept in late on Friday and the strong w/e Chinese data. Any further USD weakness would undermine bearish sentiment on the A/U.

Bear Flag? The Bear Flag continues to build BUT I will wait to confirm a breakdown following any further close and hold below the 0.865 support level. The ‘Flag Pole’ for the A/U Bear Flag has a height of about 630 pips. Thus, the expected move for any bearish breakdown is expected to be of about 630 pips as well. This projects a bearish target down near the 0.80 level. This is significant as this is also the 61.8% pull back for the 2008-2011 bull run. I would expect that any break and close below the 0.865 might target this 0.80 level. There are the 50% fib and monthly 200 EMA levels above this 0.80 target that may offer some interim support.

Price is now trading below the Cloud on the 4hr, daily and weekly charts and near the bottom of the Cloud on the monthly chart. A break and hold below the monthly Cloud would be very bearish for the A/U. 

The weekly candle closed as a bearish candle but with a long lower shadow.

Better than expected Chinese Trade Balance data was released over the w/e although import & export levels were disappointing.  This may impact the AUD and needs to be monitored. 

  • I’m watching for any new TC signal on this pair and the 0.865 level.   

AUmonthly AUweekly AUdaily AU4  

A/J: The A/J continued a bit higher last week but AUD weakness crept in and slowed its progress a bit. Like with the E/J, this consolidation action is forming up into a Bull Flag pattern. However, I am still looking for a pull back to at least test the 96 level.

Price is trading above the Cloud on the 4hr, daily, weekly and monthly charts.

The weekly candle closed as a bullish coloured ‘Spinning Top’ candle reflecting some indecision here.

Better than expected Chinese Trade Balance data was released over the w/e although import & export levels were disappointing.  This may impact the AUD and needs to be monitored. 

  • I’m watching for any new TC signal on this pair.

AJmonthly AJweekly AJdaily AJ4

G/U: The GBP/USD continued to chop around either side of the 1.60 level in the lead up to Thursday’s BoE interest rate news. Price dipped below this support following this news and with continuing USD strength. The hold below 1.60 has to be viewed as bearish BUT traders need to be cautious. USD weakness crept in on Friday and, if this continues, it could help to support the Cable. It is worth remembering that the Cable is still trading within a potentially bullish descending wedge pattern. 

Price is now trading below the Cloud on the 4hr, daily and weekly charts and in the bottom of the Cloud on the monthly chart. This is quite a bearish development here and price wouldn’t have to fall too much further to end up below the support of Cloud on all time frames.

The weekly candle closed as a bearish candle but with long shadows reflecting some indecision here.

  • I’m watching for any new TC signal on this pair, the daily chart’s wedge trend lines and the 1.60 level.

GUmonthly GUweekly GUdaily GU4

GBP/JPY: The GBP/JPY did not really look back at all after closing above 179 the week before. I am still hoping for a test of this key S/R level but I’m cautious in case there could even be a deeper pull back.

Fib levels of the recent bull run show the 179 level between the 23.6% and 38.2% fibs which would not be all that deep a pull back. Thus, looking further below this reveals the 50% fib that is aligned with the monthly pivot near 176. Further down there is another key S/R level at 173 and this is just past the 61.8% fib and so I’ll be keeping an eye on all of these in any potential pull back move.

Two key S/R levels on the G/J chart: The monthly chart shows a band of choppy congested activity across the chart. This band is defined by rather strong S/R levels at 179 and 167. The 179 level seems to be a key demarcation level and a close and hold above this would suggest bullish continuation. The key 173 level lies midway between these two S/R levels. Targets for any bullish break and hold above the 179 level, apart from obvious whole number levels, include the 50% fib near 184, the 61.8% fib near 200 and the 78.6% fib near 222.

Price is still trading above the Ichimoku Cloud on the 4hr, 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 179, 176 & 173 levels.

GJmonthly GJweekly GJdaily GJ4hr

Kiwi: NZD/USD:  The Kiwi continued chopping up and down above the 0.77 support level until Thursday.  Price dipped below this with continuing USD strength but the pair managed to reclaim this level by the end of the week. However the pair continues making ‘lower highs’ and ‘lower lows’ which, until there is any obvious bullish reversal, has to be seen as bearish.

The 0.77 remains the key level to watch here as any break and hold below this level would trigger the start of a ‘Bear Flag’ move. I am still also seeing a possible bullish descending wedge as well though so any continued hold above the 0.77, along with any developing USD weakness, might help to support this bullish pattern.

Bear Flag for Kiwi: The ‘Flag Pole’ for the Kiwi’s ‘Bear Flag’ is about 1,100 pips. Thus, any bearish breakdown and continuation below the ‘Flag’ trend line may be expected to extend by 1,100 pips as well. This would bring the Kiwi down to near 0.67 cents. This level is between the 61.8 and 78.6% fibs of the 2009-2014 bull run. Given that the 0.77 is strong support I would still prefer to wait to confirm any possible ‘Bear Flag’ move until there is a close and hold below this 0.77 level. The 0.77 remains a significant S/R level for the Kiwi. This level represents the previous swing low for the period during mid-2013 and, prior to then, from mid-2012.

Fib levels shows other possible targets for any bearish continuation below 0.77 as being the:

  • 38.2% fib near 73.5.
  • 50% fib near 70 and the monthly 200 EMA.
  • 61.8% fib near 0.65.

Price is still trading below the Ichimoku Cloud on the 4hr, daily and weekly charts but is in the top of the Cloud on the monthly chart.

The weekly candle closed as bearish coloured ‘Spinning Top’ reflecting the indecision here with this pair.

Better than expected Chinese Trade Balance data was released over the w/e although import & export levels were disappointing.  This may impact the Kiwi and needs to be monitored. 

  • I’m watching for any new TC signal on this pair, the ‘Flag’ trend lines and the 0.77 level.

KiwiMonthly KiwiWeekly KiwiDaily Kiwi4

The Yen: U/J: The U/J continued drifting higher last week following on from the BoJ easing.  I had suggested the next obvious target for the U/J might be the 78.6% fib up near 114 and this is where the U/J parked for much of the week in the lead up to Friday’s NFP. A bit of USD weakness crept in on Friday yet the U/J managed to close above this 78.6% fib.

I’m on the lookout for a possible pull back with this pair and I am hoping for a pull back down to 110. This is between the 50% and 61.8% fib levels of the recent bull run and so isn’t too unreasonable as a target.

Price is still trading above the Cloud on the 4hr, daily, weekly and monthly charts which is a bullish. November 2013 was the first monthly candle close above the Ichimoku Cloud since mid-2007 and the bullish hold above the monthly Cloud continues to be noteworthy.

The weekly candle closed as a bullish candle.

Weekly Chart Bullish Cup’ n’ Handle pattern: This pattern is still taking shape following the recent BoJ easing. 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 2,400 pips. The interesting point here is that a 2,400 pip bullish move up from the ‘Handle’ would put price up near the 124 level. This level is the last major swing high for the U/J from back in 2007 and represents the 100% fib pullback for the move down in 2007 to the lows of 2012. Possible targets along the way include the psychological whole number levels and the 78.6% fib that is up near the 114 region.

  • I’m watching for any new valid TC signal and the 110 level.

UJmonthly UJweekly UJdaily UJ4

USD/CAD: The USD/CAD rallied over 250 pips following last week’s bullish breakout from the 4hr chart’s descending wedge. The accompanying TC signal wasn’t initially valid but price eventually closed above the 4hr Cloud and gave a 170 pip move.  

Strong CAD employment data towards the end of the week along with some USD weakness following NFP resulted in this pair pulling back. I am still hoping for an even deeper pull back though to test the key 1.10 level.

Triangle breakout target:  The Loonie has also 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. This is where it gets interesting! 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.

Price is now trading above the Cloud on the 4hr, daily, weekly and monthly charts which is bullish.

The weekly candle closed as a bullish candle.

  • I’m watching for any new TC signal on this pair and the 1.10 level.

LoonieMonthly LoonieWeekly LoonieDaily Loonie4hr

Silver and Gold: I wrote a couple of articles about the two metals during the week and these can be found through the links here and here. Both gave great trading opportunities off the 30 min charts during the US sessions on Wednesday and Friday.

Silver: Silver continued lower last week with ongoing USD strength and fell close to testing the $15 level by Wednesday.  USD weakness crept in after Friday’s mixed jobs data though and this resulted a strong rally for the metal.

The ‘Bear Flag’ appearance on the daily chart is still rather ominous here but I would need to see a close below $15 support to support this pattern.

Silver is still trading below the Ichimoku Cloud on the 4hr, daily, weekly and monthly charts which is bearish.

The weekly candle closed as a small bearish candle with a long lower shadow reflecting this price recovery.

  • I’m watching for any new TC signal and the $15 level.

SilverMonthly SilverWeekly SilverDaily Silver4hr

Gold: Gold continued lower after the previous week’s break of major $1180 support. I had noted last week about the importance of the next major fib support level of 61.8% down near $1,145.  Gold fell and tested this level on Wednesday and Thursday. Some USD weakness then crept in following Friday’s mixed US jobs data and this resulted in a significant rally for the metal up from this key support.

Some would claim that the weekly hold below the $1,180 is bearish and that this pull back is just a test of this level before bearish continuation. That may well be BUT if USD weakness continues, even if only for a while, there could be more of a bullish run in store for Gold. It might pay to note that it printed a bullish-reversal weekly candle as well!

Any weekly close below $1,145 however would have me looking for lower support levels down near whole numbers, with the obvious $1,000 being significant, and then the 78.6% fib near $950.

Gold is still trading below the Ichimoku Cloud on the 4hr, daily, weekly and monthly charts.

The weekly candle closed as a bullish-reversal ‘Hammer’ candle.

  • I’m watching for any new TC signal on this pair, the 61.8% fib near $1,145 level and the $1,180 level.

GoldMonthly GoldWeekly GoldDaily Gold4hr

 

 

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