The US$ has closed higher for the week helped by the decent jobs added and wages component of Friday’s NFP. Both indices remain range bound on their weekly charts though and, with very little evident momentum, it might be a bit longer until there is any clarity about a new direction on either index.
Monthly: The new August candle is currently printing a bullish coloured ‘Spinning Top’. For the time being though, the monthly chart still shows a Bull Flag forming and, if it evolves, 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. Thus, any break and hold back above 100 might be expected to target this region.
Monthly Ichimoku: The August candle is trading well above the monthly Cloud.
Weekly: The weekly candle closed as a bullish coloured ‘Inside’ candle above the key S/R level of 95.50. Overall though, price action remains range-bound between 100 and 92.50 and it has been stuck within this channel for over 18 months. Any break and hold below 92.50 would have me looking for a potential move down to test the congested area containing the monthly 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 below the weekly Cloud and is struggling to get back above this resistance. However, the Cloud is thinning and so it might prove easier to puncture in coming sessions.
Daily: Price action was bullish each day of last week except for Tuesday.
Daily Ichimoku Cloud chart: Price bounced up off the daily Cloud last week.
4hr: Price chopped sideways to higher last week. Note how it failed on Friday at the 61.8% fib though! This will be the level to watch next week for any make or break with this bullish continuation effort.
4hr Ichimoku Cloud chart: Price traded below the 4hr Cloud for most of last week but edged back up into the Cloud on Friday following the decent NFP result. This chart is still divergent from the daily chart for now though and suggests US$ choppiness.
Monthly: The new August candle is currently trading as a bearish coloured ‘Spinning Top’ and ‘Inside’ candle but still well above the 94 level giving the monthly chart a ‘Double Bottom’ appearance.
Monthly Ichimoku: The August candle is trading below the Cloud. Note the Bollinger bands still clamping down here.
Weekly: The weekly candle closed as a bearish coloured ‘Inside’ candle but still within the weekly chart’s trading channel. There have been two conflicting weekly-based technical patterns competing over many months; 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 continuation might eventually target the 50% and 61.8% fib levels of this two-year swing low move.
Weekly Ichimoku: Price action has closed above the weekly Cloud. This is the fourth full weekly candle to clear the weekly Cloud which is a bullish signal.
Daily: Price chopped lower last week but note the range-bound price action between the 100 and 99 levels.
Daily Ichimoku Cloud chart: Price traded above the Cloud last week.
4 hr: Price chopped lower last week but note the range-bound nature of this chart.
4 hr Ichimoku Cloud chart: Price chopped down through the Cloud last week and closed below the Cloud. This chart is back to being divergent from the daily chart and suggests choppiness.
- Both indices continue to hold within long-term broad Flag patterns that have persisted for over 18 months.
- The USDX and EURX indices are divergent across their 4hr and daily charts suggesting further choppiness and that caution is needed.
- The USDX closed below the weekly Cloud again and the EURX remains above the weekly Cloud and, as strange as this may seem, this supports a bias towards ‘risk on’.
- There is very little momentum evident on the weekly charts of both indices though; the ADX, +DMI and –DMI are all below the 20 threshold level on both the USDX and EURX weekly charts.
USDX: The US$ closed higher last week after chopping around either side of the key 95.50 level in the lead up to NFP. Whilst the headline Unemployment Rate was higher than expected the decent jobs added and wages components were cheered and helped to lift the index to close above this threshold level.
There is little USD-related data of note next week until Friday when there is US Retail Sales, PPI and Prelim UoM Consumer sentiment data. There is Chinese Trade Balance data on Monday though and this result could shape overall market sentiment to start the week thereby impacting the US$.
The index has survived 95.50 once again but I still consider it to be in no-man’s land whilst it trades above 92.50 but 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 18 months. The levels to keep watching on the USDX are:
- The 95.50 level.
- 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 closed lower last week and is being pegged by the 100 and 99 levels.
Traders need to remember that there is policy divergence between Europe and the US with the Eurozone trading within a monetary easing cycle and the US trying to emerge from one. Both Indices remain trading within long-term trading channels and so I continue to wait for any decisive breakout from these resistance zones.
The levels to watch on the EURX continue to be:
- The 100 level which is recent resistance.
- 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 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.