FX Technical Weekly 08-13

Joel: Wednesday’s violent pullback officially confirms short-term topping and opens the door for deeper setbacks over the coming sessions. The latest downside acceleration has also triggered a break of the previous weekly low to set up a bearish reversal week. For now, look for next support by 1.2700 to be tested over the coming sessions, with any intraday rallies expected to be very well capped ahead of 1.3070.

Jamie: The EURUSD rally off of the low is in 3 waves so I’ll stay bearish against 12910. If a flat is unfolding from 12780, then the EURUSD would exceed 12910 before the bear resumes. I am treating this as an alternate scenario however. Targets in the week ahead are 12490 and 12370.

Joel: The inter-day double top triggered on Tuesday is now well on its way to reaching its 1.5500 area objective following Wednesday’s sharp downside follow through. There is a confluence of support by 1.5500 in the form of the 200-Day SMA and rising trend-line support from early June and a sustained break below this level will suggest that a more meaningful top is in place by 1.6000. Inability to establish a close below 1.5500 on Friday will keep the up-trend intact.

Jamie: The GBPUSD is testing parallel channel support and a break is needed in order to more strongly suggest that a top is in place. A break would expose the 161.8% extension, which is 15440. This level is reinforced by former resistance at 15480. In the event of a corrective advance, resistance is 15720.

Joel: A nasty market reversal on Wednesday has confirmed our bearish bias and should now open additional declines over the coming days and weeks back towards the 0.8400-0.8600 at a minimum before the possibility for a resumption of gains. The market has now traded back below the 200-Day SMA and we will look to see if we get a close below this longer-term SMA on Friday to help reinforce bearish outlook. Any intraday rallies should be very well capped ahead of 0.9050. It is also worth noting that latest bearish price action has set up a bearish reversal week.

Jamie: Although the AUDUSD exceeded 9012, the rally can still be treated as a correction, possibly a 4th wave within the decline from the top. Look lower in wave 5 towards 8875. Dropping through there could see a decline to 8730.

Joel: The daily close below 0.7200 on Wednesday confirms a shift in the structure and now puts the focus back on the downside, with the market now looking to establish back below the 200-Day SMA by 0.7100. Next support comes in by psychological barriers at 0.7000, which guards against some medium-term support by 0.6800 further down. Look for a test of the 0.6800 level over the coming days. In the interim, any intraday rallies should be well capped ahead of 0.7250.

Jamie: The NZDUSD has found support from its multi month channel but I do expect that the channel gives way soon. 7025 remains a potential support area (161.8% extension and July 19th low). The rally from the low is in 3 waves (corrective). Favor the downside.

Joel: Critical support by 84.80 has finally been broken to open some fresh multi-year lows by 84.70 thus far. Next key support comes in by 84.45, with a break below this level exposing the monthly lows from June 1995 further down at 83.50. However, as we have already warned, daily studies are starting to look stretched, and with 84.80 finally broken, any additional declines should be very well supported ahead of 83.50 in favor of a much needed upside reversal. A break and close back above 86.25 on Friday will be required at a minimum to relieve downside pressures.

Jamie: 8480 (2009 low) has been broken and focus is now on the all time low just below 80 (1995 low). Former supports, 8520 and 8560, are now resistance. A move above 8625 would begin to suggest that an important low is in place. The proximity of 8625 suggests that the level will be breached…if so, then focus would be on 8700.

Joel: As expected, setbacks were indeed very well supported ahead of parity and the market has since bounced quite sharply back into the 1.0500 area. From here, look for additional upside over the coming sessions to test next key resistance by 1.0590-1.0680, with a break exposing the 2010 highs at 1.0850 further up. In the interim, look for any setbacks to be well supported ahead of 1.0300.

Jamie: There are 5 waves up from the low (10105), so a correction should lead to a solid buying opportunity. 10590 would be the initial bullish objective. The correction ended at 10300 (center of former 4th wave) and the USDCAD is on its way to 10590 (100% extension). While 10590 may provide some resistance, the 161.8% should be reached since the rally from 10105 is considered an impulse. That level is 10775 (above 10860 would be a 2010 high).

Joel: Continues to chop around after being very well supported on dips in the 1.0300’s. However, the latest recovery is still only classed as corrective within a multi-day range, and a clear break back above 1.0680 will now be required to accelerate gains and mark a shift in the structure. Broader market price action has been net USD supportive of late, so we would not be surprised to see a close above 1.0680 over the coming sessions.

Jamie: An examination of the wave structure since the 2008 low reveals that the long term trend is most likely up. Think of everything since then as a massive bullish base from which the USDCHF will explode higher. In Elliott, this state is referred to as a series of 1st and 2nd waves. After plunging for weeks, the USDCHF found support near its former 4th wave extreme (circled), which is common. I am looking higher.” This longer term outlook is confirmed now by the short term 5 wave advance from the low (10330). An expanded flat correction would be considered complete on a drop below 10460. Watch the 61.8% extension for support at 10440.

Joel: The latest sharp pullback below 110.00 threatens major basing prospects, and there is now the risk for a retest and break of the 2010 lows by 107.30 over the coming sessions. However, we are still holding on to the possibility of the major base staying intact, with the market potentially carving out the right shoulder of a major inverse head and shoulders base. For this to play out, we would look for any additional declines to be well supported on a close basis above 108.90 which represents the 78.6% fib retracement off of the 107.30-114.75 major move. The neckline trigger of the potential formation comes in by 114.75.

Jamie: The rally from 10730 is left in 3 waves, which is corrective. Expectations are for the entire rally to be retraced. The pair could find some support from the current level (161.8% extension and wave x low).” After slipping below the 161.8%, the EURJPY has consolidated in what is probably a small 4th wave. Continue to favor the downside. 10800 is potential support.

Joel: The market remains locked in a choppy multi-day consolidation with the latest topside failure by 137.80 now opening a drop back towards the range lows in the 131.00 area. In the interim, we would recommend standing aside until a test of the range lows (130.80),or break back above the range highs (137.80) before considering a fresh long position.

Jamie: The low ATR readings that I’ve focused on in recent weeks proved their worth. To review – “20 day GBPJPY ATR is at its lowest level since January. Since the top above 251 in July 2007, ATR readings this low have coincided with important tops. A low ATR signals low volatility, which signals complacency.” The rally from 12672 is in 3 waves (like the EURJPY), so the entire rally should be retraced although there could be some support at 13080. 13450 is resistance.

Joel: The overall structure remains intensely bearish and it looks as though a medium-term lower top has been carved out by 0.8530, ahead of the latest drop back towards the 2010 lows by 0.8065. In the interim, any rallies should be sold while the market trades below 0.8530, with only a break back above this level to negate outlook and give reason for pause.

Jamie: I maintain that the larger EURGBP trend is down towards 7600-7700 (October 2008 low and Fibonacci extension). The 3 wave rally from 8065 (3 waves are against the trend) confirms my bearish bias. The decline from 8367 may be a 3rd wave within an impulse lower from 8536. Price ideally stays below 8270.