Ichimoku Technical Analysis Focus:

  • CAD Weakness Accelerates After New WH Economic Director Favors Strong USD Policy
  • US Dollar Index may only shine against other weak currencies as JPY pushes below 106
  • High-Beta FX (AUD, NZD, EMFX) seems to share in the spoils of an emerging low-vol environment

Calm appears to be returning to FX markets that were shaken so dramatically in the opening days of February trading. For trend traders, lower volatility is often a favored backdrop for trading since volatility is often directionless noise, or can simply make it difficult to hold on to trades with compelling fundamental arguments for a trend continuation.

When traders look at the JPMorgan Global FX Volatility Index, they will see that the 3-month expected volatility dropped to the lowest level since January. A two-month low may not sound like much, but January saw the lowest level in three-years. While high-volatility favors traders who simply are looking for aggressive price swings, low-volatility tends to be an environment where trends as highlighted by Ichimoku can extend.

Traders should also keep an eye on high-beta FX that tend to perform strong in a lower volatility environment.

The Ichimoku Charts that matter this week will focus around the following currencies:

  • Canadian Dollar weakness with US Dollar possibly set to follow
  • Stubborn Japanese Yen strength
  • Stable Sterling, Euro

Want a full (& FREE) guide to walk you through Ichimoku? I created one here (click Advanced Guides)

Ichimoku has value in helping traders see and trade in the direction of a momentum-backed trend. Retail traders, at least when looked through the lens of IG Client Sentiment, tend to fight strong trends.

We often recommend backing your technical analysis with IG client sentiment as it can do a good job of helping you see sentiment backed moves, which tend to carry on for long periods, which can make for good trades if you’re on the right side.

Canadian Dollar Falls to Lowest Level of 2018

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Since the lagging line on Ichimoku when applied to the USD/CAD chart broke above the cloud alongside price, traders were encouraged to be looking for signs of a trend continuation higher. Three weeks after the lagging line breakout, USD/CAD is trading to the highest levels since June.

Per Ichimoku, the lagging line (current candle close regressed 26-periods) is a key signal that the Bullish momentum is back. However, in addition to lagging line above price, traders that utilize Ichimoku also look to the lagging line in relation to the cloud. A lagging line break above the cloud, which is plotted forward 26-periods and discussed in detail in the DailyFX Ichimoku Guide (click Advanced Tab), would signal the current price has cleared multiple forms of resistance and could continue in the direction of the trend higher.

Adding RSI(5) to Ichimoku shows a rising floor that backs the broader trend. Add IG Client Sentiment to this picture and you can see that short positions have been on the rise since early February.

Insight From IGCS: USD/CAD Retail Short Positions Favor Upside

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For those needing a refresher, Dailyfx will typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDCAD-bullish contrarian trading bias.

Always-Important USD Sees Resistance In Ichimoku Cloud

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

The US Dollar Index continues to be in keen focus as the sideways move aligns with a momentum compression per RSI(5). Such a compression would favor a big move, and as Ichimoku favors trend continuation over a reversal, traders should be on a watch for a break down in ‘King Dollar’ as new WH Economic Advisor, Larry Kudlow recommended as a buy in favor of Gold in his interview.

Regarding price resistance, March 1 marked the multi-month high for US Dollar, and early month price action can mark key pivots of support or resistance in the market. Traders would do well to heed the wisdom of Ichimoku and reserve their long-term Bullish view on USD if price continues to trade below the March 1 high of 90.57.

USD/JPY Recently Rejected At Kijun-Sen Bias Favors Retest of 105.25

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

The Japanese Yen has been quietly strengthening over the last week, especially against the North American Dollars. USD/JPY recently bounced nearly 200-pips off 105.25, but appears to be moving back toward this level, and a breakdown below 105.25 would favor what Ichimoku is highlighting, which is a downtrend with selling momentum at its back.

Japan is not without its potential black-swan events that could see aggressive JPY strength specifically when looking at the brewing scandal surrounding the Moritomo documents that were admitted to scrubbing PM Abe and his wife alongside Finance Minister Taro Aso. Any doubt that Abenomics could come to an abrupt end would likely be aligned with abrupt strengthening of the JPY. Should this improbably outcome materialize, Ichimoku would have traders on the right side of the shock.

Euro holding its own while Hedge Funds Reduce Exposure And ECB Confidence Grows

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

Finally, European currencies remain robust with the British Pound currently leading the way, but broader focus remains on the EUR after the Frankfurt hosted a conference titled ‘ECB and Its Watchers” yesterday that showed investors that the ECB looks to be unified in their patient, yet confident view in seeing persistence growth that will likely lead to further monetary policy normalization. Normalization has yet to be priced into the market in 2019 to any significant degree, but a change in market pricing for EUR tightening would no doubt favor this trend continuing higher.

Per Ichimoku, EUR/USD has shifted to a sideways consolidation into the cloud since late January. EUR/USD is the near inverse of US Dollar Index (DXY) seen above. The uptrend is finding support near 1.2150 with a breakout likely to retest 1.2550. However, given the broadness of this trend, and a brief bear trap in early Q4 2017, traders should anticipate a move to and through recent highs.

New to FX trading? No worries, we created this guide just for you.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

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