The US$ received little help from last week’s FOMC meeting minutes and the US$ index has edged lower for the week. The index held the week above 94 whole-number level but any close and hold below this would suggest it may head to test the bottom region of the 15-month trading range down near 92.50. Both indices remain trading within their weekly Ichimoku Cloud but, whilst this suggests ongoing choppiness, the EURX is trading right up near the top of its weekly Cloud and any ‘risk-on’ style Cloud breakout on the indices (up for EURX & down for USDX) would suggest a significant shift in polarity.
Monthly: The new April candle is currently printing a bearish coloured indecision ‘Spinning Top’ candle and is below the key 100 level. The monthly chart below shows a Bull Flag forming up but, given the 100 level is proving to be some resistance, there is also a possible ‘Double Top’ developing as well. The Bull Flag pattern, if it evolves, might target the 120 region and 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. Thus, any break and hold back above 100 might be expected to target this region.
Monthly Ichimoku: The new April candle is trading well above the Cloud.
Weekly: The weekly candle also closed as a bearish coloured indecision-style ‘Spinning Top’candle. Price action remains range-bound between 100 and 92.50 and has been within this channel for over 15 months. Any break and hold below 92.50 would have me looking for a potential move down to test the congested area containing the weekly 200 EMA, weekly 61.8% fib and previously broken trend line region (highlighted on the chart below). Note how any move down to this broken trend line region would be a move of similar order magnitude to the height of the current trading channel.
Weekly Ichimoku: The weekly candle closed in the middle of the weekly Cloud.
Daily: Friday was a distinctly bearish day but the previous 6 trading days resulted with indecision-style Dojis or Spinning Top candles. Price action can be seen conforming to a descending trading channel.
Daily Ichimoku Cloud chart: Price traded below the daily Cloud all week.
4hr: Price chopped sideways to lower last week.
4hr Ichimoku Cloud chart: Price traded below the 4hr Cloud last week. This chart is still aligned with the daily chart and suggests SHORT US$.
Monthly: The new April candle is printing a bearish coloured ‘Spinning Top candle as well but is holding well above the 94 level giving the chart a ‘Double Bottom’ appearance.
Monthly Ichimoku: The new April candle is trading below the Cloud.
Weekly: The weekly candle closed as a bearish coloured indecision-style ‘Inside’ candle and still within the weekly Flag. There have been two conflicting weekly-based technical patterns competing over many months; a basing-style bullish ‘Double Bottom’ and a ‘Bear Flag’ but there still isn’t a clear winner just yet. Any bullish continuation might eventually target the 50% and 61.8% fib levels of this two-year swing low move.
Weekly Ichimoku: Price is trading in the top region of the weekly Cloud. Note how the psychological 100 level is near the top of the weekly Cloud. Watch for any make or break of this region in coming sessions.
Daily: Price action chopped a bit lower last week.
Daily Ichimoku Cloud chart: Price traded above the daily Cloud all of last week and note the 100 ‘barrier’ above.
4 hr: Price chopped lower last week BUT is that a bit of a Bull Flag forming?
4 hr Ichimoku Cloud chart: Price traded above the 4hr Cloud to start the week but edged back to finish the week within the Cloud. This chart is now divergent from the daily chart and suggests choppiness.
- Both indices continue to hold within long-term Flag patterns that have persisted for over 15 months.
- Both indices closed slightly lower for the week and printed indecision-style candle patterns.
- The USDX and EURX are back to being divergent on their Ichimoku 4hr & daily charts suggesting choppiness.
USDX: The US$ closed lower for the week following the FOMC Minutes which revealed the Federal Reserve may be more cautious with their future rate-hike schedule due to concern about the health of the global economy. Next week could prove telling on the global growth front though as, apart from US earnings season kicking off, China releases Trade Balance and GDP data and the results here could sway market sentiment.
Yen strength was a significant issue last week and added to the US$ woes in what some are suggesting is a signal that markets have lost faith in Central Banks. However, as a technical trader, I see this recent USD/JPY weakness being possibly no more that just a technical correction as part of a larger currency move. I’ll have more to say on this in my Sunday update though.
Regardless of the reasons for US$ weakness and Yen strength, I still consider the US$ to be in a technical ‘no-man’s land’ whilst it trades above 92.50 and below 100. I am waiting for a decisive breakout from this region to signal the next major directional move on the index as this choppy and range-bound price action has gone on for over twelve months. The levels to keep watching on the USDX are:
- The weekly chart Flag trend lines.
- The psychological 100 level above current price. This is the top of the trading range.
- The 92.50 level below current price. This is the bottom of the trading range.
EURX: The EURX also closed lower for the week despite US$ weakness. The fact remains that there is clear policy divergence with the Eurozone trading within a monetary easing cycle and the US trying to emerge from one. Aside from fundamental issues impacting the two major currency indices though I see both trading within Flag patterns and, thus, I continue to wait for any breakout from these.
The levels to watch on the EURX continue to be:
- The weekly chart Flag 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 Flag 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 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 the more recent ‘Double Bottom’ level as seen on the weekly chart.
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.