The Ichimoku Report Nov. 22nd
Showing an inability to have a weekly close above the 1.5000 barrier, the pair has had now 4 rejections on a weekly basis here. We feel this week or next is the decider for the next leg on this pair. A close above 1.5000 increases prospects for a year end push while a close below the weekly Tenkan (has not happened since April) would likely send the pair towards the 20ema just above 1.4500 where a decent base resides just below. The Kijun is climbing fast which will also come to support the 20ema if price should fall. The Tenkan is current flat and on par with the current price which has trotted in place with only feints to the upside but nothing connecting on the chin.
We feel if you want an aggressive long, a touch of the weekly Kijun is workable or a sell just above 1.5000 but we are waiting to see the pair show the next card in its hand. We like the close below the weekly Tenkan because this would likely result in a stronger price move down since the bulls have been in control for some time. Taking out stops has always produced stronger price fluctuations than profit taking and the majority of stops are building below the Tenkan and 20ema as most of the barriers and shorts at 1.5000 have been taken out for now.
Coming off a three week climb, the pair was working an honest effort to break above the weekly Kumo only to get rejected and close down 360pips from the high and about 200pips from the open. Ironically, the last time the pair attempted and pierced the weekly Kumo, it was also coming off a three week climb ending up in failure. There is hope for the bulls as the Kijun is just below at 1.6373 while the Tenkan and 20ema hover just below at 1.6272 so there is a lot of tough hurdles for the bears to clear before they could wrestle control since there is both a price base and Tenkan/20ema/Kijun supports just below in the 1.6300 region. Should the pair eclipse these major hurdles, we would likely see a strong unwinding of price taking on 1.6000 and the summer lows of 1.5700 which launching price upward 1100pips in 5 weeks.
The Kumo is rather thick so a clearing on both sides in this year could set the tone for next year but the cloud gets increasingly more complex, twisted and contracted in the first months of 2010 so unless the pair makes up its mind soon, we expect a complex and inconsistent directional structure to start off the year with direction only getting more clear around April or May. Light longs can be attempted around the low 1.6300’s with stops just below 1.6200 and targets set to 1.65 and 1.68 while moderate sells just above 1.6875 with stops above 1.7050 targeting the 1.6500 region.
Forming its first outside reversal and bearish engulfing pattern for the 2nd time this year, we are expecting two scenarios for this week; 1) a violent sell off first being tested by the weekly Tenkan, or 2) a mild retracement back towards the highs. If scenario 1 happens, the pair will have to close below the all important Tenkan line – something only done 1x since March of this year. If it were to do this, we feel price would fall rapidly as the first layers of the long term bulls would be reducing positions. From here, there is about a 75% chance price would touch the 20ema before testing the real resolve of the bulls. Any close below this leaves only the archers at the walls for defense – meaning the Kijun will have to do most of the work. The good thing is the 50% fib level of the last swing up (from 7700 – 9400) resides here so if bulls wanted to add on to their positions for a cheaper AUD, this would be a good place to do it. Beyond this, we feel price would fall until it reached the Kumo where we feel price will likely find support and start to build another run up in 2010. We actually hope the AUD gets this cheap as we’d love to buy around 8000 using the kumo for support to run prices up to 8754 before taking a short breather before going for 9400 and possibly parity next year. Any rate hikes would likely put some wind in the sails but don’t expect the RBA to increase rates in Dec. as they’ve already stated this is not a likely option.
Forming a piercing pattern last week, the pair found support at last weeks lows and used that to climb for pretty much the entire week. We feel this short term momentum will likely see the pair this week gun for another attempt at the stifling weekly 20ema which has kept price under water since April this year over 1300pips ago. Every major approach or testing of it has resulted in price selling off a minimum of 450+ pips each time so anyone thinking of going short on this pair has their location. Be cautioned as momentum has been diverging for some time now and looks like its priming for an upmove and possible break of the 20ema. If this were to happen, the last upside test would likely be the Kijun but beyond that, there is smooth sailing for this pair up till 1.1500. We expect a mild dip in price for this week, likely in the first few days of trading but then for price to climb and make an attempt to take out the 20ema.
One important technical event to note is on the daily time compression. The pair has had its first daily close above the Kumo in over 7 months. The combination of the flat top plus the break could spur some technical buying if the flat top does gravitate price back towards it. If it does and price still closes above it or at it, we feel this could be another buying opportunity and springboard for a decent upside leg for the pair.
Once the strongest against the USD, now looking like the first to go, the pair failed at making a same or higher high and actually failed quite miserably 110h shy of the yearly highs to produce its 3nd largest weekly sell-off since January of this year. The 2nd largest sell-off for the year was only 4 weeks ago. With the pair now having its 3rd close below the weekly Tenkan, we feel the short term support between 7086 – 7158 will be under pressure soon. There may be a mild pull back early in the week but ultimately we feel the pair should be finding lower ground soon and testing the short term base. The 20ema is currently clocking in around 7000 which would be an interesting place to add longs but the momentum is showing signs of failure like it wants to take this pair down. Any breaks and closes below the 20ema or Kijun would likely result in a sell-off towards the 6300 region before finding any major support for the pair. 7000 and 6900 offer a good support zone but we feel beyond this the 61.8% fib would not offer much of a fight to prop up the current bull run.
Chris Capre specializes in using Ichimoku, Momentum, Bollinger Band, Pivot and Price Action models to trade the markets. He has built Ichimoku Systems for Institutions and has an Advanced Ichimoku Course for further training. For more information about his services or his company, visit https://2ndskiesforex.com
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