currency crosses

Currency Crosses: Technical Outlook

Of note in the world of non-USD crosses is the break of trendline resistance in both the EURGBP and EURAUD. The EURNZD may have put in a secondary low also. The bullish Yen scenario (bearish Yen crosses) presented Wednesday is looking more probable.

Euro / British Pound

Structure remains bearish below .9070 (lower lows and lower highs) but a short term resistance line has been broken and the decline from above .9400 does not look impulsive. It seems probable that price action since the December 2008 high (.9807) is a sideways correction. Movements since then are in 3 waves. A triangle could be underway.

Euro / Swiss Franc

The fight between bulls and bears wages on in a triangle that has been underway since October 2008. Triangles are typically continuation patterns, so a downside break seems more probable. Still, forecasting is an exercise in probabilities rather than certainties so jump the gun at your own risk. The triangle count shown above is bearish but a bullish outcome is possible too (a would become A and wave B would be ending now). Consider 1.5250 and 1.5070 the breakout levels. At 36.5, 10 day ATR is near its lowest level ever (ATR did reach 36 in August 1999 and July 1983).

Euro / Canadian Dollar

Price action from the October low shows a 5 wave rally, followed by a 3 wave decline that is most likely complete at 1.5592. Expectations are for a break above 1.6010 and for follow through towards 1.6300. 1.5820 and 1.5740 are short term supports.

Euro / Australian Dollar

Weekly RSI has turned up from its lowest point since July 1999 and daily RSI has turned up following divergence (as well as broken its own resistance line). More importantly, the EURAUD itself has broken above a resistance line. Trading above 1.6510 would bring to an end the series of lower highs. Strategy then would be to buy on dips.

Euro / New Zealand Dollar

Since March, the EURNZD decline was contained by a well defined resistance line. The line was tested over a dozen times in September and October, which culminated with several false breakouts and one final low (at 1.9690). Finally, the EURNZD did break out at the end of October and soared over 1000 pips. I’ve stated recently that “the break of a line with such significance would be expected to produce a larger advance so search for a secondary low (above 1.9690).” That secondary low appears to be in place at 1.9922. Short term supports going forward are at 2.0375 and 2.0270.

Euro / Japanese Yen

The EURJPY has traded sideways since April in what could be a triangle. Triangles are typically continuation patterns, which is bullish in this case. However, a complex head and shoulders pattern may also be unfolding. In other words, the consolidation could lead to a larger rounding top and reversal or a continuation of strength from the January low. This analysis is far from eye opening but evidence does not significantly favor one direction over the other at this point (especially with price trading near roughly the center of its multi month range). One interesting observation though – 10 day ATR is the lowest since August 2008, which marked a major top. The point here is that low ATR indicates complacency and fear follows complacency (eventually). A turn towards fear would probably favor a downside break.

British Pound / Japanese Yen

Sticking with the ‘contraction in volatility’ theme, 10 day GBPJPY ATR is at its lowest since July 2008 (and prior to that July 2007). As mentioned before, both times marked periods of complacency and therefore tops in price. Market dynamics are different now as the ‘carry trade’ is not nearly as popular as it was in 2007 and 2008. Still, the Yen is a low yielding funding currency and a turn towards fear would likely facilitate an unwinding of short Yen positions (just not to the degree as in years past). Structurally, a wave iv top may be in place at 163.10. A pop above 153.30 could complete a 3 wave correction from 139.71. That would present a short setup – be on the lookout.

Swiss Franc / Japanese Yen

The CHFJPY spiked above its June high in October, setting up a possible non-confirmation with the EURJPY (which did not spike above its June high). Since October, volatility has contracted and the CHFJPY is coiled like a spring. Consider the pair range bound until a break of either 86.75 or 90.00.

Canadian Dollar / Japanese Yen

Either a head and shoulders top or triangle is unfolding. The 200 day SMA has held up and maintains a positive slope. Price pattern since 88.33 is impulsive to the downside (5 waves lower), which portends a downside break from the multi month consolidation.

Australian Dollar / Japanese Yen

The 5 wave advance and 3 wave decline are dominant in the AUDJPY. The rally from 79.44 however, is choppy and quite frankly ugly. One must consider the possibility that the rally to 85.35 completed a larger structure and that a sizeable decline is underway. 21 day rate of change has broken its own trendline and is now below 0 (bearish), which supports this view.

New Zealand Dollar / Japanese Yen

The NZDJPY offers compelling reversal evidence. The rally from the February low takes the form of a wedge (and more precisely the form of a an A-B-C advance with wave C as an ending diagonal). The pair broke below its support line 2 weeks ago, which is being put to work as resistance now. The circled area could be a head and shoulders top (would need a break below 63.05 to confirm).

 

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.  Send requests to receive his reports via email to jsaettele@dailyfx.com.
 

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