US$ & global stocks jittery by Mary McNamara

Last week: US$ weakness appeared last week and this enabled one new TC signal: A/U = up to 150 (open).

This week:

The US$ weakened last week and fell below some key support levels BUT I am still waiting for a decisive breakout move either above 100 or below 95.5. An update on the FX Indices can be found through this link.

There is a distinct change in the air down here with cooler mornings and evenings, punctuated by warm days, heralding the onset of Autumn. I’m noting a similar atmosphere of change with FX given recent US$ weakness and consequential recovery efforts seen in the E/U, A/U, Cable and Kiwi. This may be just a short lived hiatus or the beginning of a new Forex season. I don’t claim to know the outcome here at all but, as one watches for the leaves to turn down here, I will also be on the lookout for new FX signals.

Greece and Grexit fear: Barry Gibb could not have realised back in 1978 just how true his iconic ‘Greece is the Word‘ penned lyrics would become. This is still the case today, however, in a totally different context. Various news reports on Friday raised concern again about a possible Grexit and IMF meetings have continued over the w/e so watch for any further impact on EUR pairs at market open. The ECB President, Mario Draghi, was quoted on Saturday saying that Greece’s troubles are urgent but it can only save itself. I’d be expecting a softer open with EUR pairs on Monday.

Cable: is back near the key 1.50 level and may chop around this level until after the UK General Election.

E/U and E/J: For Elliott Wave followers: the daily charts of both look to be conforming to a bullish-reversal pattern. Watch out for any Grexit-fear related movement though.

Gold and Silver: still look to be trying to form a base above key support and any continued US$ weakness could help their cause.

A/U: is still in a 10 week trading channel. Keep an eye out for any weekly-chart breakout.

Events in the Ukraine and the Middle East, as well as with Greek Debt talks, continue to have the potential to undermine any developing ‘risk’ appetite and need to be monitored.

Stocks and broader market sentiment:

Global stocks had a bearish week with many stock market indices printing bearish weekly candles. Most of these though were ‘Inside’ candles pointing more to ‘indecision’ rather than ‘looming calamity’, however, they are worth noting as a warning signal. These bearish candles were mostly formed courtesy of a huge global sell off on Friday. Some reasons for this being noted as due to increased Grexit fear, changes to Chinese trading regulations and a blip on the Bloomberg platform.

The German DAX has been a bullish front runner of the global indices but is currently printing a bearish-reversal ‘Shooting Star’ candle for April. This monthly candle has some time before it closes BUT it is worth taking notice of given that the index has essentially completed the triangle breakout move AND Elliott Wave is suggesting a pull back.

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 is still trading above the psychological 2,000 level and above daily trend line support. Note the developing triangle pattern still holding despite Friday’s fall:

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. There has been a recent bullish Tenkan/Kijun cross here and this evolved above the Cloud and so is deemed a ‘STRONG’ signal. Watch for any up-tick with the Tenkan/Kijun lines to endorse this signal. Price dipped on Friday but is still above the Cloud for now:

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.

Russell 2000 Index: this small caps index is considered a US market ‘bellwether’. Although printing a bearish coloured ‘Inside’ candle it is still trading above the key 1,220 level.

VIX Index: The ‘Fear’ index had a bullish week BUT is still below the 14 level.

Bonds: The bond ETF has had a bullish week given the retreat with the US$.

Oil: Oil has made a bullish ‘Double Bottom’ breakout move off the $40 support level. It closed above the $55 neck line and traders need to look for a test of this breakout level before possible continuation. USO is holding above $16 and still forming a bullish ‘Double Bottom’ with $20 as the ‘neck line here. Price is just under this $20 breakout region for the time being:

Trading Calendar Items to watch out for:

Sun 19^th: Day 2 IMF meetings.
Mon 20^th: Day 3 IMF meetings. NZD CPI. CAD BoC Gov Poloz speaks. AUD RBA Gov Stevens speaks.
Tue 21^st: AUD Monetary Policy Minutes. EUR German ZEW Economic Sentiment. CAD Wholesale Sales.
Wed 22^nd: AUD CPI. GBP Bank Rate Votes.
Thurs 23^rd: CNY HSBC Flash Manufacturing PMI. EUR French & German Flash Manufacturing PMI. GBP Retail Sales. USD Unemployment Claims.
Fri 24^th: EUR German Ifo Business Climate & Eurogroup meetings. USD Core Durable Goods order.

Forex:

E/U: The E/U chopped higher last week given recent US$ strength and bounced up off 1.045 support. Price rallied up to the 61.8% fib of the recent bear move and near the 4hr 200 EMA but stalled there ahead of the w/e.

Steve Burns posted a chart on Twitter on Friday showing a generic Elliott Wave chart reflecting ‘Bear Market Truncation‘. I’ve noted how similar this pattern is to the current E/U daily chart and the inference here is that the E/U could be in for a bit of a bounce! The two charts are shown below and, as the Hunters & Collectors famously sang, ‘Do You See What I See‘?

This choppy price action could also be just further consolidation, by way of another developing Bear Flag, as part of an overall bearish monthly-chart breakdown move. I think it would take a new break and hold back above 1.18 to convince me that this pair is in any decent recovery mode.

Descending triangle on the monthly chart: However, there is still an overall bearish pattern in play on the E/U monthly chart: a 4,000 pip bearish descending triangle breakdown 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 Jan, Feb and March monthly candles closed below this key level.

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

The weekly candle closed as a bullish coloured, almost ‘Inside’ candle, reflecting some indecision.

There are many scheduled high-risk news items that could impact the EUR/USD this week as well as renewed concern about a possible Grexit. Keep a close eye on your trading Calendar.

I’m watching for any new TC signal.

E/J: The E/J chopped around either side of the recent ‘Double Bottom’ region of 127 for much of last week. Price bounced up off this region towards the end of the week and this remains the level to watch in coming sessions.

The E/J also conforms to the Elliott Wave Bear Market Truncation pattern. Thus, watch for any continued bounce off 127.

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

The weekly candle closed as a small bullish candle. There was a bit of a lower shadow giving this candle a bullish-reversal ‘Hammer’ look to it.

There are high risk news items that could impact the EUR/JPY and these will be much the same as for the E/U. Keep an eye on your trading Calendar.

I’m watching for any new TC signal on this pair and the 127 level.

A/U: The A/U rallied last week with US$ weakness and better than expected AUD employment data. Price still remains channel bound between 0.755 and 0.795. This rally triggered a new TC signal that has given up to 150 pips and remains open. I am still watching for a breakout from this channel, either up (if US$ weakness continues) or down (if US$ strength resumes).

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

The weekly candle closed as a bullish coloured candle.

Risk events for this pair next week include RBA Monetary Policy Minutes, an RBA Gov Stevens speech, AUD CPI data, Chinese Manufacturing PMI data and any events triggering US$ strength.

There is an OPEN TC ‘LONG’ signal on this pair.

A/J: As with the A/U, the A/J also rallied last week but I’m still struggling to read this pair at the moment. As previously mentioned, stepping out to the weekly chart continues to show price action holding above the weekly 200 EMA and the monthly chart shows the A/J conforming to a triangle pattern.

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

The weekly candle closed as bullish coloured Doji candle.

Risk events for this pair are as for the A/U: RBA Monetary Policy Minutes, an RBA Gov Stevens speech, AUD CPI data, Chinese Manufacturing PMI data and any events triggering US$ strength .

I’m watching for any new TC signal on this pair.

G/U: The Cable bounced up off the weekly chart’s ‘neck line’ support, following on from US$ weakness, and drifted back up towards the 1.50 S/R region. Unemployment data on Friday wasn’t too bad and this actually triggered a relief rally above the 1.50 level but this was short lived and the Cable closed the week just below this key S/R region.

Weekly chart H&S: There is a possible bearish H&S pattern forming on the weekly chart. The height of the pattern is about 2,400 pips and suggests a similar move lower with any break and hold below the ‘neck line’. Recall that the GBP/USD printed a monthly close in March below 1.50, the first since June 2010. This bearish development supports the H&S pattern BUT we will need to see a close and hold below the neck line to confirm any such bearish breakdown.

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

The weekly candle closed as a large bullish ‘engulfing’ candle.

Cable traders will be closely watching GBP Retail Sales this week. Any up-beat result there could help price to break back up through 1.50 resistance but the looming UK Election could remain a shackle around the Cable’s neck.

I’m watching for any new TC signal on this pair and the 1.50 level.

Kiwi: NZD/USD: The Kiwi made a bullish breakout from its symmetrical triangle mid week but found resistance from the 0.77 S/R level. Price spent much of Friday’s session testing this level but closed the week just below this 0.77.

‘Double Top’ breakdown on Monthly chart? The monthly chart still reveals a possible ‘Double Top’ pattern with a neck line at 0.735 in the making. The monthly candle close below this level for January suggested a possible 2,000 pip bearish follow through move as this is the height of the ‘Double Top’ BUT there does not seem to be a hold below this key level JUST YET. This may still well evolve, especially if the USD index regains its bullish mojo but any reversal on the USD index could see Kiwi continue to bounce up off this major support.

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

The weekly candle closed as a large bullish, almost ‘engulfing’, candle.

The mains risk events for the Kiwi this week include Monday’s NZD CPI data but Chinese Manufacturing PMI will also figure as will any US$ sensitive news.

I’m watching for any new TC signal on this pair and the 0.77 level.

The Yen: U/J: The U/J chopped lower last week but the daily/weekly charts still show a bullish ascending triangle pattern developing. I continue to view this choppy triangle action as helping to form the ‘Handle’ of a potential Cup ‘n’ Handle on the monthly chart. Price is drifting down towards the bottom area of this trading range though and is also back down near the key 118.5 level. Any continues US$ weakness may see the U/J break below the support of this 118.5 and trend line region.

Price is now 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. 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 bearish candle.

Monthly Chart Bullish Cup’ n’ Handle pattern: There looks to be a new 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 pips.

I’m watching for any new TC signal on this pair, the ‘Handle’ trend lines and the 118.5 level.

USD/CAD: The weaker US$ and bounce in Oil price has resulted in this pair breaking down from the recent trading channel. This wasn’t the breakout I had expected given the potential Cup ‘n’ Handle pattern but that’s what we got! This move didn’t trigger any new TC signal but the trend line break alone gave over 300 pips worth of movement.

Price continues holding above the monthly 200 EMA however 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! Note the possible bullish Cup ‘n’ Handle forming up on the monthly chart that is in addition to the bullish triangle breakout already in play.

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. 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 has given up to 1,600 pips so far.

Monthly Chart Cup ‘n’ Handle? The monthly chart now also shows a possible bullish Cup ‘n’ Handle pattern forming up. Price may yet rally up to the 1.30 level before any ‘Handle’ formation but recent choppy action might be helping form a ‘Handle’. This is worth keeping an eye on as the pattern would be worth about 3,000 pips if it was to evolve 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 now 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. Note the support from the bottom of the daily Cloud though. However, a break below the Daily Cloud would suggest bearish continuation:

The weekly candle closed as a bearish ‘engulfing’ candle.

Risk events for the USD/CAD this week include CAD Wholesale Sales, Friday’s BoC Gov Polloz speech and any events impacting the US$. However, the fact that Oil seems to have made a bullish breakout from a ‘Double Bottom’ will also impact here and help to lift the CAD versus the USD.

I’m watching for any new TC signal on this pair.

Silver: Silver did not seem to get much benefit from the weaker US$ last week and spent the week chopping around above $16 support. This price action has formed up into a triangle pattern on the 4hr chart.

The monthly chart though shows that price action looks to be carving out a base here above $15 support. Any continued US$ weakness could assist Silver with a recovery move off this base.

Silver is trading below the Ichimoku Cloud on the 4hr, daily (just), weekly and monthly charts.

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

I’m watching for any new TC signal and the $16 level.

Gold: Gold also failed to make much out of the recent bout of US$ weakness and it hovered around $1,200 support for much of the week but managed to close above this key S/R region. As with Silver, this recent price action has Gold forming up into a triangle pattern on the 4hr chart.

The metal does continue to hold above the 61.8% Fib retracement of the 2008-2011 bull run that is near $1,145 though. Like Silver, it seems to be forming a base here and could continue with gains if US$ weakness continues.

Any new break and hold below $1,145 would suggest a pull back though. Bearish targets below $1,145 include the $1,000 psychological level and, then, the 78.6% fib near $950.

Gold is trading above the Ichimoku Cloud on the 4hr chart (just), in the bottom edge of the Cloud on the daily chart but below the Cloud on the weekly and monthly charts.

The weekly candle closed as another small, bearish coloured ‘Spinning Top’ candle.