EURUSD, AUDCAD and SP500.

Yesterday proved to be a damp squib in the end as markets limped in to the month end. The consolidation of the past few days continues, interestingly the EURUSD may be pointing the way towards to a positive resolution for markets, though this remains finely balanced bigger picture, shorter picture, it looks like it is reaching a climax over the next couple of days.

EURUSD

I have been banging on for a few days now that we may have a Failed Head + Shoulders pattern, in particular a comparison between the short-term chart on the EURUSD and a similar pattern over the much longer period from 2002 to 2006 is interesting. I have posted both charts below: With the current 4 hourly set-up top chart and the 2002-2006 set-up lower chart.

 (Click on charts below to enlarge)

 

The major similarities are as follows:

• Clearly Defined Head + Shoulders Patterns. - Longer term chart saw a Failed Breakdown in late 2005, the current chart appears to be having a similar breakdown failure.
• Both breakdown low points saw Bullish Price v Momentum Divergence.
• The Right side of the Head + Shoulders Pattern evolved as a Falling wedge Pattern. The break up was re-tested in early 2006 on longer chart, and similarly tested past couple of days,
• The failed breakdown on the EURUSD in 2005/2006 evolved as an inverted Head + Shoulder pattern, this has also been occurring this time around. 

If this follows through as per 2006, this could initially see a push to at least the low 1.3000s, (and it seems to be happening this morning, as I write the EURUSD has surged from 1.2740 to 1.2770. ) this could have implications for other risk markets.

AUDCAD

Over the past couple of weeks I have touched on the AUDCAD FX cross, my last posting regarding this pair can be seen here. Over the past week, this pair has made a further push higher, and in the past 24 hours this has made a solid push through the big resistance which has capped all year. - See chart below. - As can be seen on the chart, there was a large flag pattern on this fx pair created November through July, this has broken up, and re-tested the break. - The recent break up suggests a move higher to almost parity from the current 0.9575 may be on the cards in the next few months, with the recent broken resistance just below 0.9500 likely to become key support.

(Click on chart below to enlarge)

SP500

I have covered the SP500 over the past couple of days, and whilst I favour a bottoming process may be occurring, this is not yet clear and would be happening in the face of a large overhead Bearish pattern. However, if the bullish resolution were to continue on the above FX charts, this could spill over into equities. Firstly, a bullish move on the EURUSD would reflect a move away from risk aversion, secondly there has been quite a strong link between direction of EURUSD and AUDCAD and the SP500 in the period since the financial crisis really took hold in 2008. -- This link has not been constant, and at times the direction of these markets have diverged, however it is during these periods of divergence that these currency pairs appear to have exerted their greater influence on the direction of US equities. (See the chart below). I am aware that there are dangers in drawing conclusions from just a couple of data points, hence I am not placing strong reliance on this chart, however I think it is useful to keep this as a possible indicator within the overall backdrop that completes the much bigger picture.

 (Click on chart below to Enlarge)