US$ higher & month-end in focus

Last week: The FX Indices remain divergent on the 4hr and daily time frames and these periods are generally not favourable for my 4hr-based trend trading system and last week underscored this point. There were five new TC signals with very mixed results: A/U= 70 (closed), A/J= -100 (closed), NZD/USD = 60 (closed), EUR/AUD = 300 (closed) and another signal on Friday for the NZD/USD = -100 (closed). My 4hr-based TC trend trading system is best avoided when the FX indices are trapped within the 4hr and daily Ichimoku Cloud and so I will be cautious in the coming sessions.

This week:

Month-end: Monday is the last trading for February so watch for monthly candles after this close. A number of key market instruments are trading just above key support as February draws to a close with Oil, the S&P500, AUD/JPY and Russell 2,000 as just some to consider. A break of these support levels would endorse the case for a deeper market correction but these levels are holding for now.

The US$ caught a bid on Friday so watch for any follow-through activity. A review of the FX Indices can be found through the following link.

Risk appetite: a bit of risk appetite returned last week and the Flight to Safety Yen buying, that had shaped the previous three weeks, slowed somewhat. Many instruments continue to trade near tipping points at major support levels but are holding these levels for now. A couple of charts that illustrate this for me are weekly charts of the NASDAQ, AUD/JPY, Russell 2000 and S&P500 with the weekly NASDAQ chart (below) suggesting that a ‘Bull Flag‘ style breakout might have started. Charts of the other instruments appear lower down within this post:

NASDAQ weekly: Bull Flag breakout?

Yen pairs: Flight to Safety inspired Yen buying slowed a bit last week as some risk appetite returned, but, for how long this might remain is the big question. A number of Yen pairs have pulled back on their longer-term charts to bounce near key fib support levels and I noted as much in article earlier this week. I’ll be watching these levels in coming sessions for any make or break activity.

GBP/USD: this has closed the week below a major support level and looks heavy as Brexit fear continues to weigh and US$ strength kicks back in. The FTSE doesn’t seem as bothered by Brexit though and, although still range bound in a Flag, it is looking a bit bullish with the push back above 6,000. However, watch to see where this closes after Monday and February month-end:

FTSE weekly: Bull Flag maybe?

EUR/USD: a triangle breakout triggered on this pair on Friday that suggests a possible bearish move of up to 1,000 pips.

Gold & Silver: both metals have enjoyed a charmed run of late courtesy of some US$ ambivalence and ‘Flight to Safety buying activity. However, last week saw a bit of risk appetite return and, then, US$ strength made a come back on Friday. Both of these phenomena have the potential to undermine price action for the precious metals so traders need to watch for any continued sentiment on these lines that might then trigger further weakness and pull-back activity.

TC Signals: the FX Indices remains divergent on the 4hr and daily charts and these periods generally result in less success for my TC system on the 4hr time frame and greater reliability during the US session off 30 min charts. Thus, I’m exercising greater discretion with my algorithm during this period.

Stocks and broader market sentiment:

US rate hike concern surfaced again on Friday following upbeat US economic data but the US major indices, although closing mixed on the day, closed higher for the week. Globally, most of the major stock indices closed higher for the week; S&P500, DJIA, NASDAQ, Russell 2000, German DAX, FTSE but Canada’s TSX and the Aussie XJO were the exception.

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 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 bullish candle following on from last week’s bullish-reversal ‘Morning Star‘. The index continues consolidating within the Flag for the time being.

S&P500 monthly chart: The monthly candle has one more trading day but is currently printing a bullish-reversal ‘Hammer’ candle off strong support. 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 another bullish candle and is still above the Flag’s support trend line.

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

Oil: Oil continues consolidating near the 2009 low of $33.50 and printed a bullish coloured ‘Spinning Top’ weekly candle suggesting ‘indecision’. This will be a key chart to monitor after Monday’s market close though. Price action scrambled at the end of last month to close back above the Feb ’09 low of $33.55 and I’ll be watching to see if it can close above this threshold again for this month. Another monthly close above this $33.55 would certainly help to shape up a monthly chart based bullish ‘Double Bottom.

Trading Calendar Items to watch out for:

Mon 29^th: nil
Tue 1^st: AUD Building Approvals, RBA Cash Rate & Statement. CNY Manufacturing PMI & Caixin Manufacturing PMI. GBP Manufacturing PMI. CAD GDP. NZD GDT price Index. USD ISM Manufacturing PMI.
Wed 2^nd: AUD GDP. GBP Construction PMI. USD ADP NFP & Crude Oil Inventories.
Thurs 3^rd: AUD Trade Balance. GBP Services PMI. USD Weekly Unemployment Claims & ISM Non- Manufacturing PMI.
Fri 4^th: AUD Retail Sales. CAD Trade Balance. USD NFP & Trade Balance.

Forex:

E/U: The E/U spent much of the week chopping sideways along the 61.8% fib of the most recent swing high move. US$ strength on Friday though triggered a bearish breakdown from the daily chart’s triangle pattern and this triangle could be worth up to 1,000 pips so is worth tracking! It is worth noting that it is about a 500 pip move down to the previous S/R level of 1.045 so this level could well be tested!

Price action has also now pulled back down from the key 1.12 level but this remains a major level to keep in focus as it is the 61.8% fib of the 2000-2007 swing high move:

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. It also happens to be the 61.8% fib of the recent daily chart-based swing low 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 marking the lower boundary of a potential Bear Flag.

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

The weekly candle closed as a bearish candle BUT the monthly candle, with one more day to trade, is forming a bullish-reversal “inverted Hammer’ candle.

A new 4hr-based TC SHORT signal has formed on this pair but I am cautious given the current FX Index divergence.

E/J: The E/J chopped down last week to test the 50% fib of the weekly chart’s major 2012-2014 swing high move. Price found some support from this fib that also dovetailed in with a bit of risk appetite that returned in the latter part of the week. This 50% fib is near the 122 level and is a key level to watch in coming sessions for any make or break activity.

Any bullish continuation above 122 might target the previous S/R level of 126 but, if that fails to hold price, then the 50% fib of the recent swing low move is near the 4hr 200EMA and may attract price action. The 126 level is the base of a weekly chart triangle and this has not been tested since last week’s breakout. Technical theory would suggest that price might pull back to test this 126 level before any bearish continuation so 126 remains another key level to watch in coming sessions. However the monthly candle closes after Monday and I’ll be watching to see where this candle closes as 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.

Any failure of the 122 level though might see price target the 61.8% fib that is down near previous S/R at 115.

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 Cloud on the monthly chart.

The weekly candle closed as a bearish coloured Doji candle.

I’m watching for any new TC signal on this pair and the 122 and 126 levels.

A/U: The A/U chopped around last week either side of the key 0.72 level and triggered a couple of failed TC LONG signals. Friday’s bullish US$ action undermined the most recent of these signals as the A/U pulled back heavily.

The 0.72 level is a key region for the A/U as it is the 61.8% fib from the major 2001-2011 swing high move. The monthly chart shows how the last seven monthly candles chopped around this 0.72 and 61.8% fib region and it remains a key level to watch in coming sessions.

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

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

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

A/J: The A/J continues chopping sideways and just above the key 80 S/R level and is still trading within a larger triangle seen on the weekly and monthly charts.

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

Price is trading above the Cloud on the 4hr chart but below the Cloud on the daily, 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 monthly chart’s triangle trend lines and the 80 level.

G/U: Brexit fear continues to plague this pair and the Cable broke down from a 500 pip daily chart triangle pattern last week in a move that has already given around 370 pips but, even more noteworthy, is the weekly close below the key 1.40 level. Any monthly close below this level after Monday would be a very bearish signal indeed and would have me looking for a test of the previous low down near 1.35.

Price is 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.

GBP/JPY: The GBP/JPY chopped lower again last week and broke down from the 4hr triangle pattern giving a breakout trade that has already given 550 pips but no new TC signal.

The GBP/JPY found support though from the 50% retracement fib of the 2011-2015 swing high move. This 50% fib is near 156.50 and will be one level to watch next week for any make or break activity:

Any hold above this longer term 50% fib level near 156.50 might see price bounce up to test the 61.8% fib of the more recent swing low move. This fib happens to be near the key 167 S/R level and 4hr 200 EMA so is a level to watch for any continued bounce move.
Any failure of this longer term 50% fib level near 156.50 might see price fall to test the 61.8% fib down near 147 as this, too, is previous S/R giving it added significance.

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 and the 156.50 and 167 levels.

The Yen: U/J: The U/J chopped a bit lower again last week but found support from a recent ‘Double Bottom’ level that helped to shape up a triangle pattern. The return of some risk appetite slowed ‘Flight to Safety’ Yen buying and this enabled the U/J to make a bullish breakout up through the three week+ bear trend line of this triangle. I note that any continued bounce up to near the 61.8% fib of the recent swing low move would bring price back to near the key S/R level of 117.

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

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

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

Kiwi: NZD/USD: The NZD/USD continued to chop around either side of the daily chart’s 19 month bear trend line and the long-term 0.67 S/R level but US$ strength on Friday resulted in the Kiwi closing the week below these two key levels.

It is worth noting though that any bullish break and hold 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 chart, just 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 ‘Spinning Top’ candle reflecting this recent indecision-style activity.

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

USD/CAD: The USD/CAD chopped lower last week, broke down from a 4hr chart triangle and triggered another TC SHORT signal. The price of Oil continues to hold up well for now and this is keeping the CAD$ supported and, thus, is putting pressure on this pair.

I’ve noted over recent months how the 1.40 – 1.35 region is a long term congested zone and price has now closed week, not only below 1.40, but now also below 1.35. Any hold below 1.35 would have me looking for a test of the other key S/R level down at 1.30.

Monthly Chart Cup ‘n’ Handle? The monthly chart shows that, even with this recent choppy action, there is 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 and daily chart but above the Cloud on the weekly and monthly charts.

The weekly candle closed as another bearish candle.

There is an open TC ‘SHORT’ signal on this pair.

Silver: Silver was consolidating within a 4hr chart triangle above $15 support for much of the week. US$ strength on Friday though triggered weakness here though and Silver broke down below the $15 level, the triangle trend line and also back below the weekly chart’s wedge trend line. The 30 minute chart shows how this Friday move offered a decent breakout trade opportunity during the US session.

I will be watching to see if the 61.8% fib of the recent swing high move, near $14.50, offers any support here.

Silver is trading below 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 candle.

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

Gold: Gold spent the week consolidating within a 4hr triangle pattern below $1,250 resistance but above key $1,200 support. US$ strength on Friday resulted in Gold pulling down to test the bottom trend line of this triangle but the $1,200 level has held.

I note on the daily chart that any deeper pullback down to the 61.8% fib of the recent swing high move would bring price to the daily 200 EMA and very near to previous S/R at $1,145/50.

Bullish targets for any continuation move though include:

$1,250 S/R level.
The recent swing low’s 50% fib near $1,425. This is also near the monthly chart’s bear trend line.
The recent swing low’s 61.8% fib near $1,500.

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

The weekly candle closed as a bearish candle following last week’s bearish-reversal ‘Hanging Man’ style candle.