The week ahead

USD Index is in a large congestion area which is morphing into a multi month symmetrical triangle. We need a break either way to establish the trend. Given the risk on rally we are in, I would have expected USD Index below 97 support area.

The EURUSD closed above 50% Fib retracement having broken out from a small Cup & Handle (clearer view on 4h chart) formation with a width of approximately 300 pips. Possible targets are:

1. Cup & handle width: counting conservatively from 1.3275, we get 1.3575 as a target. 

2. If Fib 50% is overcome, the next target usually is 61.2% retracement at 1.3627

3. Another way of looking at it is of two equal legs. The first leg is almost 700 pips (low to high), so we can assume the second leg to extend to approximately 1.3675 from 1.2975.

In short, anywhere between 1.3575 to 1.3675 we should expect a top, of major significance probably.

But there are 2 obstacles that make a move beyond 1.36 very difficult. One is the strong resistance at approximately 1.3530. Another is the downtrend line from August 28 2011 top. This line is currently at 1.3625 and comes down by 7 pips a day. The uptrend is a bit extended judging by RSI, so I will be waiting to short at those 2 levels described above with a min target of 100 pips. 

If GBPUSD can close above 1.5907, I will be looking to buy dips. The bad news is that RSI is diverging and that throws some doubts as to whether 1.59 handle can be overcome.

Commodities block is underperforming lately while equities continue to inch up. Anything suspect?!

USDCAD: underperformer of late. Need to clear that range

AUDUSD: currently it is in a continuation Flag formation. If price breaks down from the Flag and the second uptrendline, Ozzie will be heading to 1.0375 and failing to hold there to the upper boundary of the large symmetrical triangle pattern

 I will post trades on Twitter/StockTwits as usual.

Good luck 

P.S. If you are short Japanese Yen via JPY crosses, then it is time to take some money off the table. While I doubt we have seen the top in GBP/EUR/AUD vs JPY, vertical moves that we saw of late make me very nervous.