FX Technical Weekly 09-03

EURO / US DOLLAR

Joel: Despite the latest bounce back above 1.2800, the structure sill remains bearish with the market below the 18Aug 1.2925 high. A lower top is sought out below this key short-term resistance, to be confirmed on a break back below 1.2585 over the coming days. While a break back above 1.2925 would delay our bearish outlook, it will not force a shift, with additional rallies then seen well capped ahead of 1.3100. Nevertheless, overall price action remains quite choppy and we do not recommend any positions in either direction at current levels.

Jamie: Since price has failed to accelerate in a timely manner (which one would expect if the decline were a 3rd wave), I am leaning towards the idea that the decline from 13340 is corrective. The next few days should offer clarification. This rally may be the beginning of a C wave that will exceed 13340. I expect to go long next week, ideally on a pullback near 12750/80.

BRITISH POUND / US DOLLAR

Joel: The market looks poised for a fresh drop following the latest bout of consolidation, with a lower top now confirmed by 1.5600, following the break back below 1.5370. Below 1.5370 now exposes a more meaningful drop to test next key medium-term support by the 100-Day SMA in the 1.5100 area. Ultimately, only back above 1.5700 would negate bearish bias and give reason for pause.

Jamie: The British Pound has not found the support that the Euro has enjoyed. Watch the channel for support as well as 15250 and 15125. The pattern of the decline from 16000 is not clear-so the decline is probably not complete. One possibility is a double zigzag. The 2 legs would be equal at 14980, which is defended by the July 12th low.

AUSTRALIAN DOLLAR / US DOLLAR

Joel: Wednesday’s aggressive rally has called into question the validity of our bearish outlook, with the market racing higher to take out some key short-term resistance by 0.9080 and close back above 0.9100. Still, gains have stalled out just ahead of the 78.6% fib retrace off of the August high-low move, and this does keep bearish bias alive for now, but with much less conviction. In the interim, the key levels to watch above and below come in by 0.9120 and 0.8860 respectively and we will look for a break on either side for clearer directional bias.

Jamie: The AUDUSD has gone north in a hurry and I’m upset with myself for missing this move. However, the market will be here next week and I lean towards buying weakness. The latest surge may have been a thrust from a triangle. If so, then the AUDUSD should come down to at least 9050.

NEW ZEALAND DOLLAR / US DOLLAR

Joel: The daily close below 0.7200 several days back confirms a shift in the structure and now puts the focus back on the downside, with the market looking to establish back below the 200-Day SMA. Next support comes in by 0.6945, which guards against some medium-term support by 0.6800 further down. In the interim, any intraday rallies should be well capped ahead of 0.7150 on a close basis.

Jamie: The NZDUSD has broken through its neckline from the short term inverse head and shoulders and has reached the 61.8% retracement of the decline from 7400. Resistance extends to 7250. Near term studies are overbought and warn of a pullback…support begins at 7130.

US DOLLAR / JAPANESE YEN

Joel: While the market trades below the 20-Day SMAs on a close basis, the downtrend remains intact and deeper setbacks below 83.60 can not be ruled out. A close above the 20-Day SMA will be required at a minimum to offer some form of relief to downside pressures. The market has not closed above the 20-Day SMA since mid-June when the pair was trading over 90.00. A break below 83.60 will open a test of next key psychological barriers by 83.00.

Jamie: Focus remains on the all time low just below 8000 (1995 low) for the USDJPY. A multi month channel defines the near term trend but RSI divergence on the daily (multiple times over the past several months) warns of a reversal. That channel is at 8550 today and decreases 10 pips/day.

US DOLLAR / CANADIAN DOLLAR

Joel: Price action remains quite choppy, although our overall outlook is highly constructive and favors additional upside towards 1.1000 over the coming weeks. For now, the latest rallies have stalled out in familiar territory by recent range highs in the 1.0600’s and we would look to take advantage of any additional declines back towards the 1.0350-1.0400 area to build on long positions. Back below 1.0245 would delay outlook, while a close above 1.0700 should accelerate gains.

Jamie: The USDCAD continues to respect its summer range. The June, July, and August highs all occurred within several pips of 10680. Channel support comes into play at current price although I do expect the level to give way next week as the rally from 10105 is left in 3 waves. Further, the advance is in 2 equal legs…the entire advance from 10105 will probably be retraced.

US DOLLAR / SWISS FRANC

Joel: Has finally managed to take out the yearly lows from January by 1.0130, with the market easily dropping below this level to 1.0065 thus far. However, any additional declines below 1.0065 are seen limited, with medium-term studies looking stretched. As such, we would be more inclined to be looking for opportunities to buy at current levels. For now, a break and close back above 1.0265 will be required to relieve immediate downside pressures.

Jamie: Longer term (months out), I am USD bullish but there is no evidence to suggest that the USDCHF will find a bottom and reverse anytime soon. At this point, it appears that 10130 will fail and lead to a drop below the 2009 low of 9916. That could complete a 2 year correction from 12300. Channel resistance is at 10250.

EURO / JAPANESE YEN

Joel: The market is in the process of consolidating following the break to fresh multi-year lows by 105.40 in the previous week. However, while the price holds below the 20-Day SMA, the overriding trend is still intensely bearish and rallies should be used as an opportunity to sell back into the trend. Only a close back above the 20-Day would negate and give reason for concern. At this point, we can not rule out the possibility for a test of 100.00 should the 105 handle be taken out.

Jamie: The EURJPY may have found an important low at 10540. The 5 wave pattern is visible from the October 2009 high. Expectations are for a correction higher (which could be sharp) to at least 11500 and perhaps close to 12000 over the next 4 to 6 weeks. Near term, price has broken higher from a small triangle (terminal pattern) so there is the possibility of a move back to 10740 before strength resumes.

BRITISH POUND / JAPANESE YEN

Joel: The market remains locked in a choppy multi-day consolidation with the latest moves resulting in a test and break of the multi-day range lows. Nevertheless, we are not quite ready to adopt a bearish outlook and instead favor taking to the sidelines until a clearer opportunity presents. Key levels to watch above and below come in by 133.65 and 128.65 respectively.

Jamie: The GBPJPY decline from its 2009 high is contained within a well defined channel. The GBPJPY has failed to take out its May low, which creates a divergence with the EURJPY that often attends important turns (this is true with the CADJPY and AUDJPY as well).

EURO / BRITISH POUND

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. The 100-Day SMA by 0.8380 could be a perfect area to consider a fresh short position.

Jamie: I’ve been waiting for a drop towards 7700 in order to complete a large 4th wave correction. However, the June low has held for several months and the decline from the top (2008 high) sports 2 equal legs. This rally appears to have legs and support is at 8250/75. In the coming weeks, a move above the red line would signal that a 3rd wave is underway towards 8900/9000.