Watching the US$ closely & Chinese data in focus this week

Last week: Last week offered a few new TC signals which came both as a bit of a surprise and with mixed results: E/U = -50, U/J = 60, Kiwi = -30 and GBP/AUD = 200. I’m still patiently waiting for a breakout on the FX Index charts to hopefully herald potential new trend trades across the currency pairs.

This week:

The US$ index and EURX are still consolidating within triangle patterns. An update on the FX Indices can be found through this link.

Chinese Trade Balance data was released on Saturday and whilst the headline result was a huge miss, with seemingly dire consequences for AUD and NZD pairs, two points are worth noting here. Firstly, Iron Ore imports were at there highest level for the year which might bode well for the AUD. Secondly, this result, bad as it may appear, might sit within the parameters of China’s desire to shift from reliance on an export driven economy to that of a domestic driven consumer economy. Just sayin’!

There was also Chinese CPI data released on Sunday and this slightly better than expected result might compete to overshadow the Trade Balance result. Thus, whilst many would be jumping in to SHORT the likes of the A/U and NZD/USD I’m not as confident and will wait to see how these settle down to trade on Monday after market open. There is more Chinese data to come this week with Industrial Production released on Wednesday.

Apart from the Chinese data US and NZD Retail Sales will be in focus as will GBP Employment data and US PPI.

Stocks and broader market sentiment:

The S&P500, DJIA, NASDAQ, Russell 2000 and DAX closed lower for the week but the FTSE closed marginally higher.

With increased rumblings about a stock correction I thought it timely to pull up this 70+ year chart again. The top of the 13 year range in this chart corresponds to the 1,600 region on my monthly chart (further below). I have stated many times before that I would view any dip to 1,600 as a buying opportunity.

Thus, 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 below the psychological 2,100 level BUT is still above the daily trend line support. The possible bearish ascending wedge is still in play and so I’ll keep watching these trend lines:

Ichimoku S&P500 daily chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. There was a bullish Tenkan/Kijun cross here recently but this evolved below the Cloud and so was deemed a ‘WEAK’ signal. Price is back below the Cloud though now:

S&P500 Ichimoku weekly chart: the index is holding above the weekly Cloud for the time being:

S&P500 monthly chart: a break of the monthly support trend line. The monthly trend line remains intact but a break of this support level would suggest to me of a more severe pull back or correction. I am still seeing divergence on the monthly chart for now though.

Russell 2000 Index: this small caps index is considered a US market ‘bellwether’ and has closed the week below the key 1,220 level AND with a bearish weekly candle. There isn’t a whole of momentum with this move just yet though….note the ADX:

VIX Index: The ‘Fear’ index is still below the 14 level although it printed a bullish coloured ‘Spinning Top’ candle.

Oil: closed with a bearish candle for the week. A ‘Triple Bottom’ might still be building on the weekly chart or a Bear Flag?

Trading Calendar Items to watch out for:

Sat 8^th: CNY Trade Balance.
Sun 9^th: CNY CPI.
Mon 10^th: nil
Tue 11^th: AUD NAB Business Confidence. EUR German ZEW Economic Sentiment.
Wed 12^th: CNY Industrial production. GBP Employment data.
Thurs 13^th: USD Core Retail & Retail Sales & Unemployment Claims.
Fri 14^th: NZD Retail Sales. EUR German Prelim GDP. CAD Manufacturing Sales. USD PPI & Prelim UoM Consumer Sentiment.

Forex:

E/U: The E/U chopped lower to start the week but found support from the recent triangle trend line and continues to range within a Flag pattern. Friday’s NFP brought some US$ weakness and this also helped to support the E/U. It is worth noting that this Flag pattern has persisted for over 5 months now.

Any new trend line breakdown and continuation could signal the start of a weekly-chart Bear Flag breakdown worth up to 3,500 pips. Keep an eye on the lower flag trend line, and also the recent low down near 1.045, in case they offer up any support.

It is interesting to note that the target for the Bear Flag is similar to the target for the larger, monthly-chart, descending triangle breakdown….confluence!

Descending triangle on the monthly chart: 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 the 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!

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

The weekly candle closed as a bearish coloured Doji candle reflecting some indecision here.

I’m watching for any new TC signal on this pair and the weekly chart’s Bear Flag trend lines.

E/J: The E/J chopped down and up whilst holding above 134 support last week. The potential H&S pattern on the daily chart has faded but a new triangle pattern has taken its place.

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

The weekly candle closed as small bullish candle.

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

A/U: The A/U remains below the 0.755 level and this is keeping the prospect of a major 1,700 pip Bear Flag in focus. However, whilst price chopped along either side of lower support near 0.735 and within a descending wedge for most of last week, US$ weakness on Friday resulted in the A/U breaking up and out from a bullish descending wedge pattern. I’ll be watching to see how the A/U responds to the w/e Chinese Trade Balance and CPI data.

There is major support below the current level of the A/U and this is coming from a monthly support trend line and with two key Fibonacci levels just below this at 0.72 and 0.71 respectively:

72 is near the 61.8% fib of the major swing high move from 2001 to 2011.
71 is near the 78.6% fib of the 2008-2011 swing high move.

The bullish wedge breakout suggests continuation and I will be looking for a test of the previous S/R region of 0.795 as this is also the 78.^% fib of the recent swing low move and the daily 200 EMA.

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

The weekly candle closed as a bullish candle and this follows from last week’s bullish-reversal ‘Inverted Hammer’ candle.

I’m watching for any new TC signal on this pair and the 0.735, 0.755 and 0.795 levels.

G/U: The Cable continues consolidating within a symmetrical triangle pattern and I’m watching for any momentum based triangle breakout. The weekly close below 1.55 is a bit bearish though.

Weekly chart H&S: There is still a possible bearish H&S pattern forming on the weekly chart but the failure to break below the ‘neck line’ is holding this pattern off the time being. 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. I would consider that any close and hold back above 1.60 would void this pattern.

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

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

Wednesday brings the first bit of high impact data for this pair with Employment data so watch for any momentum-based triangle break then, if not before.

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

Kiwi: NZD/USD: The Kiwi chopped a bit lower last week and this price action has helped to form up a weekly-chart Bear Flag above 0.64 support. As with the A/U and E/U though, US$ weakness on Friday helped to lift this pair as well. I’ll be watching to see how the NZD/USD responds to the w/e Chinese Trade Balance and CPI data as well.

I’m still on the lookout for any support from the 0.64 level as this is near the key 61.8% fib of the 2008-2011 swing high move.

‘Double Top’ breakdown on Monthly chart? The monthly chart still reveals a possible ‘Double Top’ pattern with a neck line at 0.735. 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’. This bearish move has yielded over 800 pips so far.

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

The weekly candle closed as another small bullish candle.

I’m watching for any new TC signal on this pair, the revised Flag trend lines and the 61.8% fib level near 0.64.

The Yen: U/J: The U/J chopped along the 124 level to start the week but then lifted off from this key S/R level to break up and out from a recent daily triangle pattern. Remember that 124 represents highs not seen since April 2002 yet price closed just below this level for July. Price action didn’t travel too much further from there though as the markets waited for Friday’s NFP. The US$ weakness that followed the jobs report brought the U/J back down to near the 124 level again, albeit just on the high side of this major S/R region. I will be re-adjusting the upper trend line.

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

The weekly candle closed as a small but bullish 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~ 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.

I’m watching for any new TC signal on this pair and the 124 level.

USD/CAD: The USD/CAD chopped along above the key 1.30 level last week. The significance of this region can be seen on the monthly chart. The bullish hold above 1.30 suggests continuation here but I’m still seeing a ‘Cup’ pattern on the monthly chart and this then brings thoughts of potential choppiness to create the ‘Handle’. I do expect many traders will be putting in orders to LONG from any re-test of 1.30.

Triangle breakout target: The Loonie had previously 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 over 2,100 pips so far.

Monthly Chart Cup ‘n’ Handle? The monthly chart now also shows a possible bullish Cup ‘n’ Handle pattern forming up under the 1.30 level. This is worth keeping an eye on as the pattern would be worth up to 3,500 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 trading above the Cloud on the 4hr, daily, weekly and monthly charts.

The weekly candle closed as a small bullish candle with a bit of an upper shadow.

I’m watching for any new TC signal on this pair and the 1.30 level.

GBP/AUD: This pair chopped lower last week and printed its first bearish candle in 13 weeks.

I mentioned last week that following the monthly candle close that I’d be looking for any signs of a pullback here to test either the monthly 200 EMA or even the 2.07 major S/R level and now that the monthly 200 EMA has been broken I’m watching the 2.07 region. There is the look of a ‘Cup’ pattern on the monthly chart and so we could see some choppiness around this 2.07 region as a potential ‘Handle’ forms up. This choppiness could still deliver decent moves though within these swings.

Price is now trading below the Cloud on the 4hr chart but above the Ichimoku Cloud on the 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/NZD: The GBP/NZD chopped back up to test the major monthly-chart bear trend line again but, once again, this has resistance level been rejected.

It is worth noting that any 61.8% fib pullback here would bring price back down to the previous breakout region of 2.10.

The GBP/NZD is now 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 and the monthly chart’s bear trend line.

Silver: Silver chopped sideways under the key $15 level again last week in the lead up to Friday’s NFP. The US$ weakness that followed the jobs report resulted in Silver testing the $15 level and a recent bear trend line but failing to close above either of these for the week. Any continued US$ weakness though may help to support Silver though.

The lack of a clear direction on the US$ is adding to the uncertainty here and the next move for Silver may be more clear when, or if, the US$ breaks out from its ranging triangle pattern.

I would expect many traders might have been looking to SHORT Silver with any test of this $15 level.

Silver 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 ‘Doji’ candle reflecting some indecision.

The hold below $15 is bearish and keeps the $11 and $9 levels in focus. $11 is previous S/R and the $9 area is the 100% fib level.

I’m watching for any new TC signal and the $15, $11 and $9 levels.

Gold: Gold chopped sideways under the $1,100 level again last week in the lead up to Friday’s NFP. The US$ weakness that followed the jobs report resulted in Gold testing near $1,100 but failing to close above this for the week.

As for Silver, The lack of a clear direction on the US$ is adding to the uncertainty here and the next move for Gold may be more clear when, or if, the US$ breaks out from its ranging triangle pattern.

I still expect that many traders might be looking to SHORT Gold with any test back up at the key $1,145 though as this is the first hold below that region since March 2010.

The hold below $1,145 suggests that a deeper pull back could be in store for Gold. Bearish targets below $1,145 and $1,100 include the $1,000 psychological level and, then, the 78.6% fib near $950.

Gold 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 bearish candle.