EUR/USD Daily Ichimoku

FX:EURUSD   Euro / U.S. Dollar
Examining the Daily EUR/USD chart using Ichimoku Kinko-Hyo analysis we can see that the pair has finally woken up following a long period of consolidation and is set to resume its downward path. Fundamental news in recent days concerning the outcomes of the French and Greek elections (generally perceived to have negative implications for the European debt crisis) have cast further pressure on the Euro and added volatility to the pair.

Running through standard Ichimoku check-lists we can see that:

1) Price has successfully broken out of the Kumo to the downside following a period of consolidation within the Kumo itself and having been capped within an increasingly narrow descending triangle pattern characterised by small daily candles (i.e low volume and general indecision). The most recent price action and volume however from the Kumo Top to the Kumo floor was stronger ( engulfing in three days most of April’s range) helping to penetrate through the strong resistance of a flat Kumo floor which had held as support for the past month. This is a very bearish pattern .

2) We can see also see that Tenken-Sen had a bullish Kijun-Sen cross previously that was invalidated by Kijun-Sen being flat (i.e. no trend) and also Chikou-Span and future Kumo looking bearish . This led to a false bullish Kumo-Breakout above the Kumo before price retreated aggressively into the cloud only to cross again (this time bearish ) within the Kumo (a medium-strength cross). Importantly, Kijun-Sen has woken-up and is angling down in support of the bearish move and this tells us that price is moving away from its equilibrium (starting to trend). This is a further bearish signal.

3) Future Kumo is bearish and gaining depth (i.e. getting thicker) and Chikou-Span has also successfully broken through the Kumo having already being positioned on the right side of price (beneath) to support a bearish view. This is traditionally a major sign that the Kumo breakout has the legs to continue its path

4) One of the last hurdles for price was the psychological level of 1.3000 just south of the Kumo and this has also been successfully breached and now appears to be retesting from beneath as resistance. Should this hold as resistance we can realistically look to the next major support level as a potential target in the coming week or two.

5) We also have full validation from the higher time frame (weekly) which paints a similar picture and it is interesting to see that last week’s price action was a rejection of the weekly Kijun-Sen which suggests the trend will resume for the time being.

6) The caution is that price has already drifted far from the Kumo and the Kijun-Sen and will most likely retrace back to (at least) the Tenken-Sen before resuming its downward path. A brief retracement to the area close to the Tenken-Sen would offer the best low-risk entry for traders that missed the initial opportunity.

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