Knife edge for markets as month draws to a close?

Last week: The FX Indices slipped back into the resistance zone of their 4hr Ichimoku Clouds last week making for some choppy 4hr trade action with my TC system. There were three new TC signals but all of these were losses. USD/CAD = -60, EUR/AUD= -100 and the AUD/USD = -50. Whilst frustrating from the ‘loss’ aspect of these trades at least it confirms my long term observation that 4hr TC style trend trading is best avoided when the FX indices are trapped within the 4hr and daily Ichimoku Cloud. These periods generally offer better trading opportunities off 30 min charts during the US session for those who can trade this time frame.

This week:

This is the last full week of trading for February so keep an eye on monthly candles as they start to close.

US$: the US$ failed to make gains out of Friday’s upbeat US CPI data. I’ll be watching to see how the index trades in response to this week’s US Consumer Confidence, Core Durable Goods, Weekly Unemployment and Prelim GDP data. A review of the FX indices can be found through this link.

Risk appetite? there is a definite battle between Bulls and Bears with risk sentiment resting on a knife edge at the moment. Many instruments are trading near major support levels making for an interesting final week of trading for February. The monthly chart of the AUD/JPY sums this up best for me as this highly risk-correlated pair teeters at the 80 precipice. A monthly close above 80 would lend support to the Bulls cause but a close below 80 and the triangle trend line would play in favour of the Bears:

GBP: The British Prime Minister, David Cameron, on Friday negotiated a deal with his European Union colleagues aimed at helping to keep the United Kingdom in the EU. Watch for any GBP reaction to this news.

Gold: Gold has been on a bullish run but the rally is well due a pause. The weekly candle printed a bearish-reversal style candle and so a pull back, a healthy event even as part of bullish continuation, might just evolve.

EUR/JPY: closed the week below major support and may be on the start of a 2,000 pip triangle breakout move. Definitely one to watch in coming sessions.

Stocks and broader market sentiment:

A number of major stock indices closed higher for the week; S&P500, DJIA, NASDAQ, Russell 2000, TSX, FTSE and XJO but the German DAX was an exception here. The S&P500, DJIA, NASDAQ and Russell 2000 are all trading above support trend lines from Flag patterns but, in doing so, remain range bound for the time being.

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 closed just above the psychological 1,900 level and is holding above the monthly support trend line.

S&P500 weekly: this still has a bit of a Bull Flag appearance and traders need to keep note of both the 2,135 level and monthly support trend line for any breakout or respect. The weekly candle closed as a large bullish candle and this is giving the chart a bit of a bullish-reversal Morning Star look to it. However, the index continues consolidating within the Flag for the time being.

Bullish-reversal Morning Star pattern:

S&P500 weekly candles: enlarged:

S&P500 monthly chart: a break of the monthly support trend line. The monthly trend line remains intact for now but a break of this support level would suggest to me of a more severe pull back.

Russell 2000 Index: this small caps index is considered a US market ‘bellwether’ and does have a bit of a potential bearish H&S brewing. However, the weekly candle closed as bullish candle and above the Flag’s support trend line.

NASDAQ weekly: looking a bit bullish and we got the follow-through bounce after last week’s Hammer style candle:

DJIA weekly: ranging in a Flag here too:

VIX Index: The ‘Fear’ index has printed a bearish weekly candle and is still below the 30 threshold.

Oil: Continues chopping around near the 2009 low of $33.50 but printed a bullish weekly candle.

Trading Calendar Items to watch out for:

Mon 22^nd: no high impact data but lots of EUR PMI prints to watch for.
Tue 23^rd: EUR German Ifo Business Climate. USD CB Consumer Confidence.
Wed 24^th: US Crude Oil Inventories.
Thurs 25^th: AUD Private capital Expenditure. GBP Second Estimates GDP. USD Core Durable Goods & Weekly Unemployment Claims.
Fri 26^th: Day 1 G20 Meetings. USD Prelim GDP.
Sat 27^th: Day 2 G20 Meetings.

Forex:

E/U: The E/U chopped lower last week but is currently conforming to a daily chart triangle pattern. There is a triangle evident on the monthly chart as well and this is worth noting as February draws to a close.

The 1.12 remains a major level to keep in focus as it is the 61.8% fib of the 2000-2007 swing high move, best seen on the monthly chart.

The key levels to keep monitoring here include:

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.
1.18: this is major long term S/R level (seen on the monthly chart)
1.045 /1.040: the recent & longer term support levels.

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

The weekly candle closed as a bearish candle.

There is a lot of EUR PMI data on Monday so watch to see if these trigger any movement on this pair. Also worth keeping an eye on is to see if there is any developing GBP$ bullish sentiment as this might impact EUR/GBP flows thereby putting pressure on the EUR$.

I’m watching for any new TC signal on this pair, the triangle trend lines on the daily & monthly chart and the 1.12 level.

EUR/JPY: The E/J chopped lower last week and back down towards the 126 S/R level that it had bounced up off the week before. This support gave way on Friday though and the E/J closed the week below this major 126 support triggering the start of a potential 2,000 pip weekly chart descending triangle breakout.

Technical theory would suggest that price might pull back to test this 126 level before any bearish continuation so this remains the level to watch in coming sessions. Any continued pullback above 126 however might then target the 4hr chart’s 61.8% fib at 129.5 which is just above the 4hr 200 EMA. Added to all this, the monthly candle closes in just over a week and I’ll be watching to see where this candle closes with respect to the 126 level: a monthly close above 126 might suggest this pair could bounce higher but a close below 126 would support the bearish bias and 2,000 pip triangle breakout.

Bearish targets for any triangle continuation breakdown include the 61.8% fib of the recent swing high move which is near the whole number 115 level and would deliver around 1,000 pips. The 115 is a whole number level and long term S/R region that can be seen on the monthly chart. The maximum 2,000 pip triangle breakout target would evolve if price hit the 78.6% fib.

I’m still seeing the monthly Cloud’s bearish Tenkan/Kijun cross and note that these crosses have been few and far between so they are worth noting! Note how the ADX is starting to move higher so watch for any close above the 20 level:

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

The weekly candle closed as a bearish candle.

I’m watching for any new TC signal on this pair and the 126 level.

A/U: The A/U chopped higher last week and tried for a triangle breakout and new TC LONG signal on Thursday but weaker than expected Unemployment data undermined both moves. The Aussie remains resilient though and recovered to close higher for the week.

Price action is back to trading within a triangle on the 4hr chart but it is the monthly chart that bears most attention. This chart shows how the last seven monthly candles have clustered around the major 61.8% fib from the 2001-2011 swing high move. This fib is near the whole-number 0.72 level and, thus, is one to watch in coming sessions.

Price is trading above the 4hr and daily (just) Cloud but below the Cloud on the weekly and monthly charts.

The weekly candle closed as a small bullish, almost ‘Spinning Top’, candle.

I’m watching for any new TC signal on this pair, the 4hr chart’s triangle trend lines and the 0.72 level.

A/J: The A/J was trading within a 4hr triangle pattern but broke down towards the end of the week giving a 100 pip triangle breakout move down to the 80 S/R level. The A/J continues within a larger triangle seen on the weekly and monthly charts though.

Price closed the week above the major S/R region made up of the 80 level and monthly triangle support trend line again and this remains the region to watch in coming sessions.

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

The weekly candle closed as a bearish coloured Doji candle suggesting indecision.

I’m watching for any new TC signal on this pair, the monthly chart’s triangle trend lines and the 80 level.

G/U: The Cable broke down from a 4hr triangle pattern during last week and this move gave over 150 pips before price action found support from the 61.8% fib of the recent swing high move and from the whole number 1.43 level:

The Cable traded down quite close to the 1.40 region last week and this is a major S/R level best viewed on the monthly chart. The pair caught a bid on Friday though with encouraging talk surrounding the UK being granted special status within the EU. Whether this weakens the case for a Brexit move remains to be seen but Prime Minister Cameron appears confident that it will and has called for a referendum to decide the matter to be held on June 23rd. Price action may continue to be weak but there is also a chance that this latest news may help to stabilise, or even support, the GBP.

This latest ‘to an fro’ activity has price action back trading within another 4hr chart-based triangle though and I note the ADX, +DMI and-DMI are all below 20. Thus, it might be easier to catch any triangle breakout move that evolves with increased momentum and this latest referendum news may just be the trigger.

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

The weekly candle closed as a bearish candle BUT I note the monthly candle, which although yet to close, is currently shaping up as a bullish-reversal ‘Inverted Hammer’ off this major 1.40 support. The monthly candles close at the start of the following week so watch to see how and where this one closes.

I’m watching for any new TC signal on this pair and the 4hr chart’s revised triangle trend lines.

GBP/JPY: The GBP/JPY chopped lower again last week due to some early GBP weakness and a bit more ‘flight to safety’-inspired JPY strength and it remains below the key 167 level. The monthly candle closes in just over a week and I’ll be watching to see where this candle closes with respect to this 167 level.

I’ve got this pair within a 4hr triangle pattern giving us trend lines to watch for any new momentum-based breakout move.

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

The weekly candle closed as a bearish candle.

I’m watching for any new TC signal on this pair, the triangle trend lines and the 167 level.

Kiwi: NZD/USD: The NZD/USD chopped up and down last week whilst holding under the daily chart’s 19 month bear trend line and the 0.67 S/R level.

I note that any bullish breakout above this bear trend line might target the 50% of the 2014-2015 swing low move as this is also near a strong level of previous S/R at 0.75 and the weekly 200 EMA (see daily chart).

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

The weekly candle closed as a bullish coloured ‘Spinning Top’ candle suggesting indecision.

I’m watching for any new TC signal on this pair, the 0.67 level and the monthly/weekly chart’s bear trend line.

The Yen: U/J: The U/J chopped a bit lower last week with continued doubt about the relative health of stock markets and concern about Oil pricing and global growth keeping some ‘flight to safety’ Yen buying in force.

Monthly Chart Bullish Cup’ n’ Handle pattern: There still looks to be a longer-term bullish Cup ‘n’ Handle forming up on the monthly chart. 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 4,800 ~ 4,900 pips. This may seem like a massive move but the longer term chart below shows this move to be reasonable as it would take the U/J up near the 50% fib of the 1985-2012 swing low move. Note the 101.5 level on the other monthly MT4 chart though. Any pullback down to this level, apart from helping to form up the huge Handle for the Cup ‘n’ Handle, would also help to develop a bullish ‘Inverse H&S’ pattern.

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

The weekly candle closed as a bearish coloured candle.

I’m watching for any new TC signal on this pair and the 117 level.

USD/CAD: The USD/CAD chopped around under the 1.40 S/R last week and price action formed up within a 4hr triangle. There looked to be a triangle breakout and new TC SHORT signal during Thursday’s Asian session but both were undermined by subsequent Oil price weakness that developed in the following US session.

The 1.40 -1.30 channel remains a congested S/R zone on the monthly chart time frame and so this choppy action might continue.

Monthly Chart Cup ‘n’ Handle? The monthly chart shows a developing bullish Cup ‘n’ Handle pattern with a neck line at 1.30. This is worth keeping an eye on as the pattern would be worth up to 3,500 pips as this is the height of the ‘Cup’. The interesting point is that the target for this pattern would put price up at the highs reached back in 2002 and this is equal to a 100% Fib retracement of the 2002-2007 bear move.

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

The weekly candle closed as another bearish coloured ‘Spinning Top’ candle reflecting ongoing indecision.

I’m watching for any new TC signal on this pair, the revised 4hr chart’s triangle trend lines and the 1.40 level.

EUR/AUD: Price action chopped sideways along the key 1.55 last week. A new TC signal to SHORT here failed as price held above this 1.55 support.

The 1.55 – 1.75 remains a congested trading zone over the longer term and monthly time frame keeping me focused on the impact of price action at the boundaries.

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

The weekly candle closed as a bearish candle.

I’m watching for any new TC signal on this pair, the triangle trend lines and the 1.55 level.

GBP/AUD: This pair is still trading within a descending trading channel but chopped down to test the whole-number 2.0 level last week although it managed to close the week above this S/R level.

Two bullish patterns? I’m still seeing two possible bullish patterns on the monthly chart. Firstly, the choppy daily chart Flag action continues to support a ‘Cup’ pattern with a neck line near 2.07. Price is currently trading under the upper edge of the ‘Handle’ of this pattern. However, any resumption of bullish momentum could bring an alternative monthly chart pattern into focus though. Any continued push up to the 2.40 region, near the monthly chart’s 61.8% fib, would help to form up a bullish ‘Inverse H&S’ pattern. I would then be looking for a pullback back down to the ‘Shoulder’ region of 2.07 to complete this pattern.

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

Traders need to watch and see if Friday’s UK news helps to keep the GBP$ supported at all as this could help this pair to continue to bounce up off the 2.0 level.

The weekly candle closed as a bearish candle.

I’m watching for any new TC signal on this pair and the 2.0 level.

EUR/GBP: I’m still stalking a bullish ‘inverse H&S’ pattern here although price has already made it to within 120 pips of the 500 pip target and Friday’s EU and PM Cameron’s news might be a game changer here.

Price action has struggled to escape the 0.77 S/R level and Friday’s GBP strength had this level under pressure again. Traders need to watch and see how the markets digest the latest news about the revised status of the UK within the EU and how this might impact Brexit options. Any reduced Brexit sentiment might help to support the GBP and reverse the recent bearish bias.

The EUR/GBP is trading in the Cloud on the 4hr chart, above the daily and weekly Clouds but below the monthly Cloud.

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

I’m watching for any new TC signal here, the revised 4hr chart trend lines and the 0.77 level.

Silver: Silver has held above the $15 S/R level following the bullish-reversal descending wedge breakout. Price pulled back a bit and made it down to test the broken wedge trend line level but didn’t quite make it down to $15 leaving that possibility still open.

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

The weekly candle closed as a bearish coloured ‘Inside’ candle reflecting some indecision.

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

Gold: Gold has bounced up off $1,200 support following a small pullback after the earlier bullish-reversal descending wedge breakout. I had thought we might see a deeper pull back here, possibly down to test the broken three year+ wedge trend line, before potential continuation but that has not evolved as yet. This wedge trend line is down near the $1,120 level and remains on my radar.

Bullish targets for any continuation move above $1,200 include: