FOMC: it could be a defining week

Last week: In my previous w/e write up I noted how the US$ and many FX pairs were trading within triangle patterns and most of these continued at the start of last week. Friday was a bit of a game-changer though with upbeat US CPI data fueling a bullish run for the US$ that triggered a triangle breakout on the US$ index 4hr chart and on some of the FX pairs. The 4hr-chart triangle breakdown on the GBP/USD was one such notable move on Friday. Daily chart triangles are still in play though on the EUR/USD, AUD/USD, NZD/USD and USD/JPY and so this week’s FOMC will be a keenly watched event to see how it impacts the US$ and these triangle pairs. There is also the BoJ and RBNZ with their rate updates to impact some of these pairs too.

Given this range-bound behaviour, and that the FX Indices remained out of alignment, I had warned about being cautious with any new TC signals and that proved to be sage advice. There were a few new TC signals but they were choppy and generally closed for a loss: GBP/USD= loss, NZD/USD = loss, GBP/JPY =100, EUR/AUD =70 before reversing and USD/CAD = loss.

This week:

US$: It ended up being a good week for the US$ as it broke up and out from its recent triangle pattern and back above the key 95.50 S/R level. Traders will be watching to see whether this week’s FOMC will shake the index out of its 20 month 100-92.50 range bound channel. A review of the FX Indices can be found through the following link.

Data: There is a lot data to navigate again next week with three Central Banks reporting Interest Rate updates: the BoJ, the US FED with FOMC and the RBNZ.

USD/JPY: it is a big week for this pair with BoJ and FOMC updates as the pair is becoming increasingly squeezed under a triangle trend line that has been in force for the last 8 months. Something has to give soon and one or other of this week’s BoJ & FOMC meetings might be the trigger event for just such a breakout.

GBP/USD: The weekly close below 1.30 is bringing 1.28 back into focus. Is this pair headed for a ‘Double Bottom’ or ‘Bear Flag’ with this week’s FOMC and continued Brexit issues? BTW: there is a similar story unfolding on the GBP/JPY.

NZD/USD: it is a big week for this pair too with the RBNZ and FOMC rate updates occurring within a few hours of each other. Watch for any make or break of the 3 ¹/₂ month support trend line here that makes up this ascending triangle pattern:

Stocks: the major stock indices face challenge this week with FOMC but don’t ignore the bullish-reversal ‘Inverted Hammer’ weekly candles that printed off major 2,135 support on the S&P500 and DJIA:

NB: next w/e is my last w/e at home before heading overseas for four weeks. Updates during that four-week period may vary in detail and frequency.

Stocks and broader market sentiment:

Stocks closed lower on Friday following the upbeat CPI data thereby maintaining the ‘good news is bad news’ theme but most US stock indices did manage to print gains for the week. Despite this apparently mixed result, the S&P500 and DJIA indices both printed bullish-reversal weekly candles off major 2,135 and 18,000 support respectively, the Russell 2000 closed above they key 1,220 level and the NASDAQ above the 5,200 level. So, overall, the picture across US stocks at the end of the week was a rather rosy one ahead of next week’s FOMC.

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 continues to hold up from the Bull Flag and has now closed back above the 2,135 breakout level.

S&P500 weekly: The index closed with a bullish-reversal ‘Inverted Hammer’ candle and this formed just above the 2,135 S/R level.

S&P500 monthly: The current monthly candle is bearish coloured but the more interesting feature to note on this monthly chart now is how there is new convergence or, rather, that the bearish divergence has faded. Thus a new market move may be on the way here but, whilst I am looking for bullish continuation, I am still open minded about a test of the 1,600 level as per the longer-term chart.

Russell 2000 Index: this small caps index is considered a US market ‘bellwether’ and continues to hold above the Flag supporting a bullish breakout. Last week’s candle was a bullish coloured ‘Spinning Top’ candle but it closed back above the key 1,220 level.

VIX Index: The ‘Fear’ index has printed a large bearish candle but held above the 14 threshold level.

Oil: Oil continues holding above the 2009 low of $33.50 but printed a bearish candle. Watch for any test of the $50 level as this is ‘neck line’ for my bullish-reversal Inverse H&S pattern.

Trading Calendar ‘High Impact’ data Items to watch out for:

Mon 19^th: JPY Bank Holiday.
Tue 20^th: AUD Monetary Policy Meeting Minutes. USD Building Permits. NZD GDT Price Index. CAD BoC Gov Poloz speaks.
Wed 21^st: AUD MYEFO. JPY BoJ Monetary Policy Meeting and Press Conference. USD Crude Oil Inventories, FOMC & Press Conference.
Thurs. 22^nd: NZD RBNZ Official Cash Rate & Rate Statement. JPY Bank Holiday. USD Weekly Unemployment Claims. EUR ECB President Draghi speaks.
Fri 23^rd: Lots of EUR PMI data. CAD CPI & Retail Sales.

FOREX:

EUR/USD: The E/U chopped sideways last week within the daily chart’s triangle pattern and held above the key 1.12 level until Friday when upbeat US CPI data shifted the landscape. Friday’s bullish US$ move triggered a 4hr chart triangle breakdown on the EUR/USD, a move back below 1.12 and new TC SHORT signal. The 30 min chart shows the significance of this bearish move on Friday.

The 1.12 level remains a key level to keep in focus though, especially with next week’s FOMC, as it is the monthly chart’s 61.8% fib of the 2000-2007 swing high move. The chart below shows how we are up to the 20^th monthly candle chopping around near this key 1.12 level:

The daily chart shows that price has been consolidating in a range bound by the 1.15 and 1.045 levels for the last 18+ months and it also shows a daily chart triangle pattern. This new TC SHORT signal move might extend down to test this lower trend line of the daily chart triangle.

The key levels to monitor on the EUR/USD remain as:

The 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.
The 1.15: a recent resistance level.
The 1.18: this is major long term S/R level.
The 1.22: near weekly 200 EMA, a previous monthly triangle trend line and it is the 50% of the weekly chart’s 2014-2015 swing low move.
The 1.045 /1.040: the recent & longer term support levels marking the lower boundary of a potential Bear Flag.

Price is trading below the 4hr Cloud but in the daily Cloud.

The weekly candle closed as a bearish, essentially ‘Engulfing’ candle.

Traders need to watch how next week’s ECB Draghi speech and FOMC impacts this pair.

There is a new TC SHORT signal here.

EUR/JPY: Price continued within the triangle on the daily chart giving us trend lines to watch for any breakout. Friday’s bearish EUR$ move sent this pair lower and a new TC SHORT is trying to form.

This pair continues to look like it is consolidating before its next big move though and, whilst I remain open minded about the next direction here, with price testing the lower trend line and now back below 115 this could be a move to the downside!

Price is trading below the Cloud on the 4hr chart and at the bottom edge of the Cloud on the daily chart.

The weekly candle closed as a bearish candle.

I’m watching for any new TC signal on this pair, the daily chart’s triangle trend lines and the 115 level.

AUD/USD: Price action chopped lower last week but found support from the daily chart’s triangle trend line and, despite rather bullish US$ activity on Friday, the Aussie managed to hold out the week above this support.

The 4hr chart shows that the 61.8% fib of this latest swing low move is up near the 0.76 level and so this could be a target if bullish momentum returns.

The daily chart though shows that 61.8% fib of the earlier swing high move is down near the 0.72 level and this could be a target if bearish momentum picks up and the support trend line is broken.

Other levels I am watching:

Any bullish breakout above the 3¹/₂year bear trend line will have me looking up towards the 0.95 cents level. This is near the 61.8% fib of the recent swing low move (see weekly chart) and also near the other major bear trend line, since 2011, for added confluence. The 0.80, 0.85 and 0.90 would be obvious draw-cards as well of course.
Any bearish respect of this 3¹/₂year trend line and reversal would have me looking for a test of the daily chart’s triangle trend line, which is near the key 0.74 level, followed by the 61.8% fib near 0.72.

Price is trading below the Cloud on the 4hr chart but in the bottom of the Cloud on the daily chart.

The weekly candle closed as a bearish coloured ‘Spinning Top’ candle.

I’m watching for any new TC signal on this pair, the daily chart’s triangle support trend lines and the 0.76 and 0.72 levels.

AUD/JPY: Price action remains choppy on this pair and, although it broke down from a 4hr chart triangle last week, price action didn’t move too much further. This pair looks to be struggling to find its way out from between the 75 support and 80 resistance levels.

Price is trading below the Cloud on the 4hr and daily charts.

The weekly candle closed as a bearish candle.

I’m watching for any new TC signal on this pair and the key 75 and 80 levels.

GBP/USD: The Cable continued consolidating within a 4hr chart symmetrical triangle pattern, almost ‘fence-sitting’ half way between the key 1.35 and 1.30 levels, until Friday’s bullish US$ activity emerged. This triggered a bearish triangle breakout for the Cable and sent it back down to 1.30 support, a level I had thought might be off-limits until next week’s FOMC. It also triggered a new TC SHORT signal. The 30 min chart shows the significance of this US session move from Friday.

The Cable actually closed the week below the 1.30 level which is bringing the 1.28 level back into focus as a potential ‘Double Bottom’ region to test. The 1.28 level was the low reached after the recent Brexit vote result; as per the note below. These two levels will be in focus with next week’s FOMC meeting and ongoing Brexit talk. Any failure of 1.28 level to hold price will bring thoughts of a possible Bear Flag into focus so, if price does get down that far, I would expect this region to be very busy:

Remember: The Cable has been trading under a bearish trend line for the last 8 years, since peaking at 2.1161 in Nov of 2007 (see monthly chart below). Price plunged during the following 2008 year with the Global Financial Crisis and bottomed near the whole-number region of 1.35. Price action chopped higher after that though and made another peak at 1.7191 in July 2014 but has traded lower since then. In fact, the recent Brexit vote result triggered further lows for the Cable down to the 1.28 whole-number region. This price action has resulted in another bear trend line, of 2 year duration, forming up since that 2014 peak. The daily chart now shows that 1.30 is broken and, if there is hold below this level, there could be another test of the key 1.28 low region setting up a potential ‘Double Bottom’ test.

Bullish targets: above current price:

The 1.30 S/R level.
The 1.35 S/R level and GFC low region.
The 1.40 S/R level.
The 1.45/6 level which is near the weekly chart’s 38.2% fib and the 2-year bear trend line.
The 1.50 S/R level which is near the weekly chart’s 50% fib.
The 1.55 S/R level which is near the weekly chart’s 61.8% fib and the 8-year bear trend line.

Bearish targets: below current price:

The 1.28 level which is the ‘Double Bottom’ region.
The 1.20 region is previous S/R from 1984/5.
The 1.05 region which is near the monthly chart’s 100% fib.

Price is below the 4hr Cloud and daily Cloud.

The weekly candle closed as a large bearish candle.

There is no high impact GBP data slated for release next week but there is the all important US FOMC. As well, Brexit issues continue to cause ripples and articles like this one, released over the w/e, won’t help the GBP cause at all.

There is a new TC SHORT signal on this pair BUT the 1.30 and 1.28 levels are in focus with FOMC to help define either a ‘Double Bottom’ or ‘Bear Flag’.

GBP/JPY: This pair chopped sideways to lower to start last week but the losses accelerated on Friday. The GBP/JPY still managed to hold within the daily chart’s triangle pattern although the key 134 level gave way on Friday as the 30 min chart reveals.

It is worth noting that price closed the week sitting right on the 61.8% fib of the 4hr chart’s recent swing high move. Any close and hold below this fib region next week though might set up a 250+ pip move down to test the daily chart’s bottom triangle trend line so this is worth stalking!

Like with the Cable though, this pair could be setting up for either a major ‘Bear Flag’ move or ‘Triple Bottom’ test. Thus, if the daily chart’s bottom triangle trend is broken, keep an eye on the 129 level to help define one or other of these subsequent patterns:

Price is trading below the Cloud on the 4hr and daily charts.

The weekly candle closed as a bearish candle.

There is no high impact GBP data slated for release next week but there is the all important US FOMC as well as continued Brexit issues.

I’m watching for any new TC signal on this pair, the 4hr chart’s 61.8% fib, the daily chart’s triangle trend lines and the 129 level.

Kiwi: NZD/USD: The NZD/USD chopped lower last week but found support from the daily chart’s 3 ½ month triangle trend line keeping this pair range-bound for now. US$ strength on Friday sent this pair down for another test of this support trend line but it held out for the week but will obviously be in focus next week with the RBNZ and FOMC rates update. The 0.73 level wasn’t quite so lucky though and this level was broken on Friday.

Remember: The 0.73 and 0.74 levels are long-term S/R and a look at the monthly chart shows the multiple highlighted regions where price has reacted at this region over the years. This remains the level to watch for any make or break activity in coming sessions. It should be remembered, however, that the monthly, weekly and daily charts still show a broader Bear Flag pattern brewing here.

The RBNZ rate update is released just a few hours after the FOMC update and so this will be a busy and testing period for this pair. Any break and hold of the daily chart’s support trend line will have me looking for a test of the key 0.70 level as this is the daily chart’s 61.8% fib and is in the region of the daily 200 EMA as well:

The NZD/USD is trading below the 4hr Cloud but above the daily and weekly Clouds.

The weekly candle closed as a bearish, almost ‘Engulfing’ candle.

I’m watching for any new TC signal on this pair, the 4hr chart’s triangle trend lines and the 0.73 / 0.74 / 0.70 levels.

The Yen: USD/JPY: The USD/JPY continued trading within the triangle pattern last week but all the time respecting the 101.50 horizontal support level. Recall that the upper trend line here is the 8-month bear trend line from the weekly chart’s descending trading channel.

Price is trading just below the Cloud on the 4hr and daily charts.

The weekly candle closed as a bearish coloured ‘Spinning Top’ candle.

Wednesday is a big day for this pair with the BoJ and Federal Reserve bot h announcing interest rate updates.

I’m watching for any new TC signal on this pair, 4hr chart’s triangle trend lines and the 100/101.50 region.

USD/CAD: The USD/CAD traded up from the 1.30 level last week and broke up from a recent triangle pattern but didn’t get too far due to the longer-term wedge trend line that was just above this price action.

I’m still watching these wedge trend lines and the 1.30 region for any make or break activity. I do note however that any 61.8% fib retrace of last week’s swing high move would bring price back to the 1.30 level and near the 4hr chart’s 200 EMA. Confluence!

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

The weekly candle closed as a bullish candle.

NB: USD/CAD traders need to keep an eye on Oil though as any break above the key $50 level could help to support the CAD$ and keep pressure on the USD/CAD. Just FYI: I’m stalking a bullish-reversal ‘Inverse H&S on Oil with the ‘neck-line’ at $50.

I’m watching for any new TC signal, the wedge trend lines and 1.30 level.

EUR/AUD: The EUR/AUD remains in a larger monthly chart triangle but bullishly tested up against a more recent 4hr chart bear trend line during last week. This bullish test failed though and price is now back below the 1.49 level which is the ‘neck line’ of a potential bullish ‘Inverse H&S’ pattern.

The failure to close the week above this 1.49 level is bearish and undermines this Inverse H&S pattern. Any hold below this 1.49 into next week will have me looking to the 61.8% fib region of the recent swing high move which also happens to be near the weekly pivot and 4hr 200 EMA. A break and hold below this 61.8% fib would have me back looking for another test of the monthly chart’s triangle support trend line and this move is worth stalking as it would render over 250 pips!

Price is trading above the Cloud on the 4hr chart but in the Cloud on the daily chart.

The weekly candle closed as a bearish-reversal ‘Shooting Star’ at the 1.49 resistance level.

I’m watching for any new TC signal here, the 4hr chart’s 61.8% fib and the 1.49 level.

Silver: Price action continued consolidating within the 4hr chart’s triangle pattern and under the $21.50 until Friday when US$ strength shifted the metal a bit lower.

The daily chart shows a support trend line that has been in place since the start of the year and another that has been in place since June. The more recent of these two trend lines was broken on Friday although there isn’t a lot of supporting momentum just yet and so this will be the level to watch in the lead up to next week’s FOMC.

Silver is trading below the 4hr Cloud and in the daily Cloud but it remains above the weekly Cloud.

The weekly candle closed as a bearish coloured ‘Spinning Top’ candle.

I’m watching for any new TC signal, the daily chart’s triangle trend lines and the $21.50 level.

Gold: Gold chopped lower last week and back towards the bottom trend line of the 11-week trading channel; a channel bound by the major 5-year bear trend line above price and the whole-number $1,300 level below. It is worth noting that this $1,300 level held last week despite the late rush of US$ strength on Friday.

Gold is trading below the Cloud on the 4hr chart but in the Cloud on the daily chart.

The weekly candle closed as a bearish, almost ‘Engulfing’, candle.