US$ & the risk-on shift ahead of 3 Central Bank Meetings

Last week: The FX Indices remain divergent for the time being and this has been contributing to choppy conditions for my TC trend trading system. There were only three new TC signals last week although they performed a bit better: A/J= 300, Kiwi = 150 and Gold = 200.

There was a noticeable shift towards ‘risk-on‘ last week given the recent US$ weakness and this has resulted in the FX indices edging back towards alignment. These alignment periods generally result in better trend-trading conditions on the longer time frame with more reliable 4hr-based TC signals and so I’ll be keeping an eye out for any such development. However with three Central Banks reporting next week, and another three in the week after, the outcome of these interest rate updates will no doubt impact the US$ and this potential alignment. Just ‘how’ remains the big question!

This week:

US$: The US$ has weakened recently despite upbeat US economic data so watch for any bearish follow-through activity. As noted above though there are 6 Central Bank Meetings coming up in the next two weeks where the outcomes have the potential to impact US$ sentiment: the ECB, RBNZ and BoC next week and then FOMC, the BoJ and BoE updates in the following week so we could be in for a most interesting couple of weeks. A review of the current situation with the FX Indices can be found through the following link.

Commodity Comeback: last week was a good week for commodities with a further recovery in the pricing for Iron ore, Oil, Copper, Gold and Silver to name just a few. Any continued US$ weakness would help to keep commodities supported which would then have obvious implications for the commodity currencies: AUD$, NZD$ and CAD$.

Gold: this commodity deserves a special mention as it has made a bullish close above the $1,250 S/R region. Any continued US$ weakness, and further dovish rhetoric from the various Central Banks, might help to keep Gold supported but any sustained ‘risk-on’ rally with stocks might moderate gains somewhat. Gold will be in greater focus in the following week when FOMC is on the calendar.

Oil: has printed a third consecutive bullish weekly candle and also made a weekly close above a 21 month bear trend line. Watch for any continuation and for any help to support the CAD$.

Yen pairs: I wrote an article a couple of weeks ago about the Yen pairs and how a number of the majors were trading at or above key S/R levels. This remains the case for the time being and the bullish hold on the AUD/JPY above 80 is most noteworthy. Any continued risk appetite with stocks would most likely keep this pair above the 80 threshold. Again, the outcome of the ECB, RBNZ, BoC, BoC, BoJ and FOMC in the next two weeks could shift this though.

Chinese data: There is CNY Trade Balance data on Tuesday and CNY CPI data on Thursday and these items also have the potential to impact risk sentiment so keep an eye on the outcome of both of these.

NZD/USD: this was bullish last week but, although attempting a monthly chart bullish trend line breakout, it’s setting up in a Bear Flag ahead of this week’s RBNZ meeting.

Technical trading caveat: Technical trading will most likely be challenged by potential currency intervention from one or all of the 6 Central Bank interest rate updates scheduled over the next two weeks. I would still be looking out for price reaction at major S/R levels although potential breakouts may pivot to become reversals depending on the Central Bank news. Caution with opening trades or placing STOPs will be required if trading around these announcements.

Stocks and broader market sentiment:

The major stock indices have all closed higher for the week; S&P500, DJIA, NASDAQ, Russell 2000, German DAX, FTSE, Canada’s TSX and the Aussie XJO. The FTSE even looks like it has made a bullish Flag breakout and the TSX a bullish triangle breakout:

FTSE weekly:

TSX weekly:

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 a fraction under the key psychological 2,000 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 and continues consolidating within the Flag for the time being.

S&P500 weekly Cloud: the index is close to making a move back above the weekly Cloud. Worth watching!

S&P500 monthly chart: 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, is still above the Flag’s support trend line and is now back above the key S/R level of 1,080. I’ve drawn in another trend line to help gauge whether this might evolve into a Bull Flag!

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

Copper: closed with a rather bullish candle and is holding above the key 2.0 level.

Oil: Continues holding above the 2009 low of $33.50, printed a bullish weekly candle and has now broken above a 21 month bear trend line.

Trading Calendar Items to watch out for:

Mon 7^th: JPY BoJ Gov Kuroda speaks. Eurogroup Meetings.
Tue 8^th: CNY Trade Balance. ECOFIN Meetings.
Wed 9^th: GBP Manufacturing Production. CAD BoC Rate Statement. USD Crude Oil Inventories.
Thurs 10^th: NZD RBNZ Rate and Policy Statement and Press Conference. CNY CPI. EUR ECB Min Bid Rate & Press Conference. USD Weekly Unemployment Claims. CAD BoC Gov Poloz speaks.
Fri 11^th: CAD Employment data. USD Prelim UoM Consumer Sentiment. CNY Industrial Production.

Forex:

E/U: The E/U chopped lower within a descending channel until last Friday when some US$ weakness supported a bullish breakout. This closed off the TC SHORT signal from the previous week. This channel is set within a larger triangle on the daily chart and an even larger triangle on the monthly chart.

Price action continues to hold above the support of the 1.045 level ahead of this week’s ECB Interest Rate announcement and this will be a most important event to monitor.

The key levels to keep monitoring on the EUR/USD in this ECB week include:

the daily chart’s triangle trend lines.
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 marking the lower boundary of a potential Bear Flag.

Price is trading in 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 bullish candle and this follows on from the February monthly candle that printed a bullish-reversal ‘Inverted Hammer’ candle.

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

E/J: The E/J chopped back down again last week to test the 50% fib of the weekly chart’s major 2012-2014 swing high move. Price bounced up off this level again and also made a bullish breakout from a descending trading channel. This 50% fib is near the 122 level and this latest bounce might be the ‘make’ of the make or break activity I suggested watching for.

This hold above 122 is bringing the previous S/R level of 126 back into focus:

Any hold above 122 might target 126 as this is previous S/R. Price almost made it there last Friday!
Any move above 126 might target the 61.8% fib of the recent swing low move as this also recent S/R, highlighted on the chart, and is up near 128.5/129.
Any close and hold above the 129 region would bring the triangle bear trend line into focus (see weekly / daily chart).
The 126 level forms the base of a weekly chart triangle though and this has not been tested since the previous bearish breakdown. Technical theory would suggest that price might pull back to test this 126 level before any bearish continuation so 126 remains a key level to watch in coming sessions. Thus, any test of 126 but hold below might support a bearish bias and the 2,000 pip triangle breakout.
Any close and hold back below 122 though might see price target the 61.8% fib that is down near previous S/R at 115 (see monthly chart)

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 now above the 20 level:

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

The weekly candle closed as a bullish-reversal Hammer candle.

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

A/U: The A/U rallied last week following some US$ weakness early in the week and then on the back of upbeat AUD GDP data. Price moved up above the key 0.72 level and pushed up to the upper trend line of the 6-month wedge pattern in the lead up to Friday’s NFP. Further US$ weakness on Friday resulted in the A/U closing above both this wedge trend line and the key 0.74 level!

The 0.72 remains 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 eight monthly candles chopped around this 0.72 and 61.8% fib region:

The bullish move above 0.74 and the upper region of the 6 month wedge is bringing higher levels into focus. I posted an article about these levels during last week and this can be found through the following link. Essentially, 0.74 as previous S/R was a major hurdle so watch for any hold above this in coming sessions. After 0.74 is the 0.765 level as this is the 61.8% fib of the daily chart’s swing low move. Higher than that brings 0.945 level into focus as this is the 61.8% fib of the weekly chart’s swing low move.

Price is trading above the Cloud on the 4hr and 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 large bullish engulfing candle.

The RBA won’t be liking this bullish AUD/USD activity at all so watch out for any jawboning from them. There is also Chinese Trade Balance and CPI data next Tuesday and Thursday respectively to impact here.

I’m watching for any new TC signal on this pair and the 0.74, 0.765 & 0.945 levels.

A/J: The A/J bounced up off the key 80 S/R level last week and triggered a new TC signal and triangle breakout that has given 300 pips.

Interestingly, this 4hr chart triangle breakout is worth up to 650 pips and a move up to the larger weekly chart triangle trend line would exhaust that quota…confluence again!

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 large bullish candle.

There is an open TC LONG signal on this pair.

G/U: The Cable recovered back above the key 1.40 level last week despite weaker than expected GBP Manufacturing, Construction and Services PMI data. US$ weakness and some bearish-GBP fatigue must be helping to lift this pair.

I’m struggling to read the Cable at the moment but do note a new triangle of sorts on the 4hr/daily chart and a possible bullish descending wedge now on the weekly chart.

I do expect the GBP$ should remain under pressure until the Brexit vote is decided but US$ weakness, if it continues, could overtake proceedings here. Thus, as always, I’m keeping an open mind.

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 large bullish candle.

Watch next week for any impact from Tuesday’s BoE Gov Carney speech and Wednesday’s GBP Manufacturing Production data

I’m watching for any new TC signal on this pair and the 1.40 and 1.46 level.

GBP/JPY: The GBP/JPY tested the weekly chart’s 50% fib of the 2011-2015 swing high move again last week and then bounced back up to trade higher. This 50% fib is near 156.50 and it now seems that we have had the make reaction to the make or break activity I was watching for!

The hold above this longer term 50% fib level near 156.50 might has me still watching for any test of 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 and so remains a key 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 but this, too, is previous S/R giving it added significance. (see monthly chart)

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 a bullish ‘engulfing’ candle.

I’m watching for any new TC signal on this pair and the 167 levels

Kiwi: NZD/USD: The bigger picture to keep in mind with this pair is that it has been butting up against a monthly chart bear trend line over recent weeks. It is currently attempting a bullish breakout above this bear trend line BUT this is now setting up a wedge pattern giving the monthly and weekly charts a Bear Flag appearance. These wedge trend lines will probably be the ones to keep in focus ahead of this week’s RBNZ Interest Rate meeting.

The NZD/USD broke above the monthly bear trend line two weeks ago but subsequently pulled back below this major S/R region. I placed some more recent trend lines on the chart in an attempt to help chart this pair last week and this formed up a daily chart triangle. Price bounced up off the bottom trend line of this triangle last week, triggered a new TC LONG signal and moved up to test the upper trend line of this revised triangle all prior to Friday’s NFP. US$ weakness with NFP though resulted in a breakout from this daily triangle and the TC signal moved on to give 150 pips. Price action closed for the week though just below a wedge trend line, best seen from the weekly/monthly chart. Thus, whilst breaking above the the monthly and daily chart bear trend lines this has now set up for a potential Bear Flag. All rather poignant ahead of this week’s RBNZ meeting.

I note that any bullish continuation however might target the 50% fib 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 weekly chart).

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

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

Like the RBA, the RBNZ won’t be happy with this NZD$ strength and traders need to watch for any rate cut or dovish rhetoric at their meeting next Thursday. I expect that many traders will be lining up to SHORT this pair in anticipation of a possible rate cut or, at least, dovish commentary.

There is a TC LONG signal on this pair BUT watch the Bear Flag trend lines with the RBNZ news.

The Yen: U/J: The U/J chopped up and down last week whilst holding above the 111 Double Bottom region and this choppiness arose given there was both US$ and Yen$ weakness.

Any 61.8% fib recovery of the latest swing low move would bring price back up to the previous S/R level of 117 so is worth keeping an eye on.

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 bearish coloured ‘Spinning Top’ candle.

I’m watching for any new TC signal on this pair and the 111 level.

USD/CAD: The recovery with Oil is helping to support the Loonie and resulting in weakness for the USD/CAD pair. The USD/CAD chopped lower last week, broke down from a 4hr chart triangle and triggered another TC SHORT signal.

I’ve noted over recent months how the 1.40 – 1.35 region is a long term congested zone and price has now held below 1.35 for another week and this has me looking for a test of the other key S/R level down at 1.30. A pull-back to test 1.30 would not void the developing Cup ‘n’ Handle pattern and so is a key level to watch out for in coming sessions.

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 and daily chart but above the Cloud on the weekly and monthly charts.

The weekly candle closed as a bearish candle.

There are two main items of high impact data to impact the CAD$ this week: the BoC Interest Rate update on Wednesday and Unemployment data on Friday. Any BoC rate cut or dovish tone would put pressure on the CAD$ and support the USD/CAD but continued gains with Oil will have the reverse impact.

There is an open TC ‘SHORT’ signal on this pair BUT watch for any impact from the BoC update.

EUR/AUD: Price action chopped lower within a descending wedge last week and made a bearish breakdown by mid-week. This move didn’t trigger any new TC signal but the wedge breakout gave up to 200 pips.

The 1.55 – 1.75 remains a congested trading zone over the longer term and monthly time frame keeping me focussed on the impact of price action at the boundaries. However, the hold below 1.55 now looks rather bearish for the longer term!

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 large bearish candle.

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

Silver: Silver was consolidating within a 4hr chart triangle below $15 support for much of the week. US$ weakness later in the week triggered a bullish triangle breakout and a move back above the $15 level.

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

The weekly candle closed as a bullish engulfing candle.

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

Gold: Gold continued last week consolidating within a 4hr triangle pattern and below $1,250 resistance but above key $1,200 support. US$ weakness on Thursday resulted in Gold making a bullish breakout above the trend line of this triangle, moving above $1,250 and triggering a new TC LONG signal.

The weekly close above $1,250 is rather bullish however it dipped a bit on Friday, despite US$ weakness, and the metal could struggle further if yield-bearing stocks continue to remain bid. The metal pulled back to close just below the weekly 200 EMA (grey solid line on weekly chart) and there has not been a weekly candle close above this level for over two and a half years. This will be a region to watch in coming sessions though as any weekly close above this S/R zone will be significant.

Bullish targets for any continuation move above $1,250 and the weekly 200 EMA include:

The weekly chart’s swing low 50% fib near 1,415. This is also near the monthly chart’s bear trend line.
The weekly chart’s swing low 61.8% fib near 1,500.

Gold is trading above the Cloud on the 4hr, daily and weekly charts but below the monthly Cloud. I am noting how price action is holding above the weekly Cloud though for the first time in over three years!