FX: big moves already but more still to come? Stocks gain by Mary McNamara

Last week: Much of last week was choppy ahead of Thursday’s EB meeting. The signal on Gold, carried over from the previous week, has now closed but only after giving 500 pips and the E/U signal closed off after 200 pips. A new signal was received during the Asian session on Thursday for the A/J= 240 (open).

The QE package announced by the ECB was sufficient news to trigger large moves with EUR pairs but it spooked other currencies as well with the A/U, NZD/USD and GBP/USD all suffering declines and moving below key support levels. This news-driven FX movement has not been conducive to smooth TC-style trend signals but some technical breakout patterns are forming up on a number of pairs.

This week:

The USD index has managed a second bullish weekly close above the major S/R level of 92.50. US data has been mixed but the plunge with the EUR has helped to further lift the USDX:

This is a significant achievement for the USDX though and worth keeping in mind as many FX pairs trade at significant ‘make or break’ levels:

USD/CAD: continues on its 2,500 pip triangle breakout.
EUR/USD: Has broken 1.18 support and the hold below this level might signal the start of a 4,000 pip triangle breakout move.
AUD/USD: The A/U has now closed below 0.80 suggesting another Bear Flag move worth 700 pips.
NZD/USD: The Kiwi may have started a 2,000 pip Bear Flag move as well.
EUR/GBP: The hold below 0.77 might signal the start of a 2,000 pip triangle breakout.

The big moves from last week have meant that a few FX pairs have closed well outside their weekly-chart Bollinger bands. In situations like these it is not uncommon to see either a pause or pullback and so traders should be prepared for that possibility: E/U, Kiwi and EUR/GBP.

The main risk event for next week is Wednesday’s FOMC where traders will be looking for clarification about the timing of increasing US interest rates. Any delay with the rate rise schedule could trigger a pullback on the USD, with obvious implications for many FX pairs.

Greek elections are held over the w/e and traders need to watch for any impact on EUR based pairs at market open.

Gold and Silver continue to look very bullish.

Monthly candles will close at the end of next week. This is especially important for the EUR/USD and EUR/GBP as they look to be setting up within monthly chart triangle breakout patterns.

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:

The four major US stock indices, S&P500, DJIA, NASDAQ and Russell 2000 all printed bullish weekly candles.

European stock indices have rallied following the announcement of QE and I am will be watching for any bullish breakout on London’s FTSE index (click on images for a larger view):

There is a lot of uncertainty surrounding the next major move for the S&P500 and stocks in general. The S&P500 has broken above its GFC higher, as has the DJIA, but a number of global stock indices have yet to stake that claim. The FTSE above is one example as is the NASDAQ, Canada’s TSX and the Aussie XAO/XJO to name just a few. The 70 year S&P500 chart below, if history is to repeat itself, would suggest that this breakout from the 1,600 region might be the start of the next bull market. I bear this chart in mind when reviewing stocks but, as I have been saying ad infinitum, a serious test of this breakout 1,600 region before bullish continuation would not sursprise me:

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 circa 2000, 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 has held above the psychological 2,000 level and is above the daily trend line:

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. There has been a new bearish Tenkan/Kijun cross. This new bearish cross evolved IN the Cloud and so is deemed a ‘neutral’ signal BUT the index is now trading back above the Cloud. Traders need to watch out for any new bullish T/K cross:

S&P500 monthly chart: a break of the monthly support trend line. The monthly trend line remains intact. A break of this support level would suggest to me of a more severe pull back or correction possibly down to test the key 1,700 region:

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 continues to hold up and out from a ‘Bull Flag’ but has yet to breakout above the 1,220 level:

VIX Index: The ‘Fear’ index it is still under the key 30 level and pulled back last week. Whilst it is trading just above the weekly Cloud there is an open bearish cross.

Bonds: The bond ETF remains above the triangle breakout and the bullish breakout from the Cup ‘n’ Handle pattern has held for now as well. The potential ‘Double Top’ looks to have been avoided.

Oil: I am still expecting this to test $40, with or without a bounce and price action is now getting quite close to this level. I’ll be on the lookout for any reaction near this $40 level and watching stocks to see if they experience any relief from support here:

Trading Calendar Items to watch out for:

Forex:

Sun 25^th: EUR Greek Elections.
Mon 26^th: AUD Bank Holiday. EUR German Ifo Business Climate.
Tue 27^th: AUD NAB Business Confidence. GBP Prelim GDP. USD Core Durable Goods Orders, Consumer Confidence and New Home Sales.
Wed 28^th: AUD CPI. USD FOMC.
Thurs 29^th: NZD Official Cash Rate, RNNZ Statement & Trade Balance. EUR German Prelim CPI. USD Unemployment Claims.
Fri 30^th: AUD PPI.EUR CPI Flash Estimates. CAD GDP. USD Advance GDP.

E/U: The E/U traded along the 1.16 level for much of the week in the lead up to Thursday’s anxiously awaited ECB meeting. QE news sent this pair lower though and it is now testing 61.8% fib support from the 2000-2008 bull move. Apart from whole number levels, there isn’t much support below this 61.8% until the 78.6% fib at 99, in other words, until near parity! The 61.8% fib of any move often offers strong support though so traders need to keep an open mind he and be prepared for a possible bounce here, even if it is only a temporary one.

The E/U is facing the prospect of a much deeper fall now that it has held below 1.18 and this might signal the start of a 4,000 pip Descending Triangle breakout move. Monthly candles close at the end of next week and a monthly close below 1.18 support this bearish pattern.

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 below 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! The monthly chart shows how critical this 1.18 level is for the E/U. The 61.8% of the 2000-2008 bull run is down near 1.12 and might be an interim target on any breakdown move. This is a monthly chart pattern though and traders need to wait and see a monthly candle close below 1.18 to confirm here. The monthly candle closes next week but there has been a big move here already, however, a test of 1.18 before further continuation could be a possibility. This is what technical breakout theory would suggest: watch for a break of trend line, followed by a test of this trend line and, then, a continuation move.

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

The weekly candle closed as a large bearish candle.

I’m watching for any new TC signal on this pair and the 1.18 level.

E/J: The travelled along just above the 136 level in the lead up to Thursday’s ECB. Price subsequently fell away from this level following ECB though and this move triggered a new TC signal but I missed it.

The 136 level has been previous support and resistance and the charts show that this level formed up the base of a recent descending triangle. The weekly chart shows this support clearly and how any further dip may target the weekly 200 EMA down near 129 which would offer about a 700 pip move. We’re not far from now already though.

Price is now trading below the Cloud on the 4hr, daily and weekly charts but just above on the monthly chart. The monthly Cloud may offer some support here.

The weekly candle closed as a large bearish candle.

I’m watching for any new TC signal on this pair and the top of the monthly Cloud.

A/U: The A/U was sharply lower last week and has now fallen below 0.80 support.

Bear Flag? The break below this support suggests the start of a possible new 700 pip Bear Flag. This is a daily chart pattern and so I’ll be looking for a hold below 0.80 to support this development. The target for this pattern isn’t too far above the 78.6% fib.

It is no surprise that 0.80 had offered some decent support for the A/U as this was the region of the 61.8% fib from the 2008-2011 bull run and the 50% fib of the 2001-2011 bull run. However, any break and hold below 0.80 support would suggest a trip lower, possibly down to the 70 region where the next layers of fib support kick in.

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

The weekly candle closed as a large bearish candle.

I’m watching for any new TC signal on this pair and the 0.80 level.

A/J: The A/J continued to chop around within the daily chart’s triangle and either side of the 96 level prior to Thursday’s ECB. A new TC signal was triggered here on Thursday, currently up 240 pips, and price broke down from the triangle on Friday.

The 96 level is a major S/R level for the A/J as can be seen on the monthly chart. The hold below this level and recent triangle breakout has me looking for this pair to head down to test the support of the monthly chart’s triangle trend line. A break of this trend line would suggest a move lower to test the 61.8% fib and then the monthly 200 EMA.

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

The weekly candle closed as a large bearish candle.

There is an open TC signal here.

G/U: Price continued to chop along above the support of the major monthly chart triangle trend line in the lead up to Thursday’s ECB. Price fell here though too as the USD seems the only popular currency at the moment.

The Cable actually closed below the psychological 1.50 level as well and this sets up for a potential weekly-chart ‘Double Bottom’ test near 1.48.

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

The weekly candle closed as a large bearish candle.

I’m watching for any new valid TC signal on this pair and the monthly support trend line.

Kiwi: NZD/USD: The Kiwi had a bearish week and fell below the key support of the 0.77 level and tested the trading channel support trend line even before Thursday’s ECB. Price continued lower though after ECB and has now closed the week below this trading channel, suggesting the start of the possible 2,000 pip Bear Flag. The Kiwi has been trading in this descending trading channel for the last 3 months and this has contributed to the Bear Flag appearance.

Bear Flag for Kiwi: The 0.77 remains the key level to watch here as any break and hold below this level would trigger the start of a possible ‘Bear Flag’ move. The 0.77 level represents the previous swing low for the period during mid-2013 and, prior to then, from mid-2012. 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. We have now seen a weekly close below this 0.77 level and below the trading channel supporting the start of this bearish pattern. I will be looking for a test of 0.77, and or the trading channel trend line, to try and enter this technical breakout trade.

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

38.6% fib near 73.5.
50% fib near 70 and the monthly 200 EMA.
61.8% fib near 0.65.

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

The weekly candle closed as a large bearish candle and outside the Bollinger Band hence a pullback may be a possibility here. Look at the monthly chart as well. The 0.74 region has been a very strong S/R region over the the 6 years and so a bounce up off this level would not surprise.

I’m watching for any new TC signal on this pair, the trading channel trend lines and the 0.74 level.

The Yen: U/J: The U/J chopped around within the daily chart’s triangle pattern and never too far from the 118.5 S/R level in the lead up to the ECB news. This news didn’t trigger too mch movement here though and price closed the week back below the 118.5 level and still within the daily Cloud and daily chart triangle.

I had mentioned that whilst the U/J was trading within the daily Cloud that price action could be expected to be choppy and that continues to be the case. A new TC signal was trying to form on Friday but didn’t evolve. I will avoid trading this pair from now on whilst price remains trapped in this resistance zone. FOMC news this week may trigger some movement here though and I’ll be watching to see if this news can get price action out of the daily Cloud:

Price is now trading in the Cloud on the 4hr and daily charts but above the Cloud on the weekly and monthly charts. However, 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 coloured ‘Spinning Top’ candle.

Weekly Chart Bullish Cup’ n’ Handle pattern: This pattern seems to have completed now just 300 pips short of the 2,400 pip target. 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. This pattern gave up to 2,100 pips of the 2,400 pip target!

I do note that a 61.8% fib pullback of the recent bull run would bring price back down to the 110 key S/R level! (see the weekly chart)

I’m watching for any new valid TC signal, the 118.5 level, the daily chart’s triangle pattern and the 4hr & daily Clouds.

GBP/JPY: The GBP/JPY had a choppy week trading either side of the key 179 level in the lead up to the ECB meeting. Price traded lower following ECB though and broke below 179 and down from a triangle pattern. Interestingly, this move didn’t trigger any new TC signal and it came to rest again at the 61.8% fib of the recent bull run giving the daily chart a bit of a ‘Double Bottom’ appearance near 176.

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 continuation include the the 61.8% fib near 200 and the 78.6% fib near 222.

Price is still trading below the Ichimoku Cloud on the 4hr and daily charts but above the Cloud on the weekly and monthly charts.

The weekly candle closed as a bearish candle with a long upper shadow.

I’m watching for any new valid TC signal on this pair and the 176 level.

USD/CAD: The USD/CAD had a bullish week fuelled by CAD interest rate cuts and continued falls with Oil price. This pair gave a new TC signal but I missed this.

Price continues holding above the monthly 200 EMA and it is worth remembering that the last bullish monthly candle close above this level was back in February 2009, almost 6 years ago. This period also marks the longest bullish hold by the Loonie above the monthly Cloud since 2002!

Triangle breakout target: The Loonie has already 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. The bullish move so far has given almost 1,200 pips of the possible 2,500 pips!

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

The weekly candle closed as a large bullish candle.

I’m watching for any new valid TC signal on this pair as I missed the one earlier in the week.

EUR/GBP: This pair traded under the 0.77 level but above a trading channel support trend line prior to Thursday’s ECB. This news triggered a bearish move though and price closed the week below this support trend line.

The 0.77 level has been a major support and a kind of ‘line in the sand’ level for this pair and has formed up the base of a monthly chart descending triangle. Price has made a second weekly close below this key 0.77 level now but, as this is a monthly chart pattern, traders need to watch for any monthly close below this level to confirm the start of any triangle breakdown.

Descending triangle move: Any monthly close and hold below the 0.77 level would suggest the start of a descending triangle breakdown. The height of the EUR/GBP triangle is 2,000 pips and this would suggest a similar magnitude move below the 0.77 level. Thus the target for any triangle breakdown move is near 0.57 which seems to be the lows from 2,000. There has been a weekly close below 0.77 but this is a monthly chart pattern and so any triangle breakout needs to be confirmed following the monthly candle close. As with the move developing on the E/U, technical breakout theory would suggest: watch for a break of trend line, followed by a test of this trend line and, then, a continuation move.

The E/G is still trading below the Cloud on the 4hr, daily, weekly and monthly charts.

The weekly candle closed another large bearish candle.

I’m watching for any new TC signal, the 0.77 level and the triangle breakdown pattern.

Silver: Silver chopped higher last week after making a bullish break above the major monthly triangle trend line in the previous week. This is a monthly chart trend line though and traders really should wait and see a monthly close above this trend line to confirm any possible bullish breakout.

Silver is still trading above the Ichimoku Cloud on the 4hr and daily charts but below the Cloud on the weekly and monthly charts.

The weekly candle closed as a bullish candle. Traders need to remember that Silver printed a bullish engulfing candle for the December monthly candle and that was the first bullish candle in over five months.

I’m watching for any new TC signal, the 4hr chart triangle and the monthly triangle trend line.

Gold: Gold rallied last week after triggering a new TC signal and a bullish ‘Inverse H&S’ during the previous week. The TC signal has closed off now but only after giving up to 500 pips. G

Gold is looking very bullish now and I wrote a separate article about this last week that can be found through this link. Price action may remain choppy next week until after FOMC but, irrespective of whether US interest rates increase sooner or later, the case for Gold has been supported by recent central bank activity.

Inverse H&S on Daily Chart: The previous weekly close above the $1,250 ‘neck line’ suggests that this technical pattern is underway. The ‘height’ of the H&S is about $105 ( $1,250 – $1,145). This would suggest bullish continuation of the same order which places the target move at around $1,355 ($1,250 + $105). Interestingly, this target is near the weekly 200 EMA and just below the upper limit of the weekly charts horizontal trading channel that has held price since the start of 2013. I still would not be surprised to see another test of this $1,250 level though so ‘long’ traders might want to lock in profit before any possible dip.

It certainly looks like the 61.8% fib of the 2007-2011 bull run, near $1,145, has formed a base for this precious metal. Price is currently struggling at the $1,300 though as this is a major S/R level in its own right and price is consolidating in a 4hr chart triangle around this level. $1,300 is the 50% of the 2008-2011 bull move and the bottom of the monthly Cloud. A close and hold above $1,300 would be bullish but I still would not be surprised to see a test of $1,250 as this is strong S/R as well and was the region of one of the trend line breaks.

The weekly chart shows that Gold has now broken above two bear trend lines: one that has been in play since late 2012 and one that has been in play for much of 2014 and, as such, this marks a significant bullish breakout. The next major trend line above current price is that of the upper trading channel trend line at $1,400.

The monthly chart still shows that price action is forming up in a descending triangle pattern. The weekly chart though shows that any 61.8% fib pullback of the recent swing low move would bring price up to near this monthly trend line. This will be a level to watch as will the previous S/R level of $1,400 which is below this trend line.

Whilst it looks likely that Gold is carving out a base here any new break and hold below $1,145 would suggest that this support might give way to a deeper pull back. Bearish targets below $1,145 include the $1,000 psychological level and, then, the 78.6% fib near $950.

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

The weekly candle closed as a small bullish candle.