Commodity Currencies Plunge into Important Support

Trend Table

Trend Strength (M,W,D)

CHARTS

-price bar chart

-base currency 10 yr interest rate in green

-counter currency 10 yr interest rate in red

-interest rate differential in black

-indicator that measures change in interest rate differential and change in price over 20 days is in blue (blue bar indicates strong bull move and warns of a top when no longer blue – red bar indicates strong bear move and warns of a bottom when no longer red)-referred to as JSINT

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) & 2yr +10yr US yields

Daily

Prepared by Jamie Saettele, CMT

Jamie – The consolidation from the May low best resembles a triangle thus the downside is favored until a new low is registered. After testing the June low, a bounce may materialize over the next few sessions but any strength is expected to prove corrective. 9500 is resistance.

Joel – The market remains locked in a multi-day consolidation since basing out by yearly lows back in April. Ultimately however, until the consolidation is broken, buying on overdone interday dips towards the range lows and selling on exhausted rallies towards the range top by 9750 is the preferred strategy.

Euro / US Dollar

Daily

Prepared by Jamie Saettele, CMT

Jamie – In volatile times, it often pays to look at the longer term picture. In this case, the EURUSD rally from the 2010 low is in 3 waves. The rally does not consist of 2 equal legs (that would be at 15264) but since the top in May, the EURUSD has trended sideways to down which indicate distribution. As long as price is below the late July high of 14535, I am bearish.

Joel – The market continues to adhere to a bearish sequence of lower tops since May, with a fresh lower top now in place by 1.4535 ahead of the next downside extension back towards and eventually below 1.4000. In the interim, look for any intraday rallies to be well capped ahead of 1.4250, while only back above 1.4375 delays.

British Pound / US Dollar

Daily

Prepared by Jamie Saettele, CMT

Jamie – The GBPUSD rally from the 2010 low is also in 3 waves and may be complete. The rally from the December low is a bit more than 61.8% of the rally from the May low (61.8% is 16620 – high is at 16745). Near term, the GBPUSD is holding up well and a move above 16509 may complete an expanded flat (as a 2nd wave) from the 5/24 low.

Joel – Despite the latest rally back above 1.6400, the market still remains locked in a broader downtrend off of the April highs, and a fresh lower top is now sought out somewhere ahead of 1.6550 in favor of the next downside extension back towards the recent range lows at 1.5780. Ultimately, only a break back above 1.6550 would delay bearish outlook and give reason for pause, while back under 1.6220 should accelerate declines.

Australian Dollar / US Dollar

Daily

Prepared by Jamie Saettele, CMT

Jamie – The AUDUSD continued to plummet and is now over 500 pips from its record high last week! Price has already dropped below the 50 and 100 day averages and the June low at 10388. The next big support is the 200 day average at 10300. Having printed below the June low, we could get a snapback rally through 10525 or even back to 10680.

Joel – The latest violent bearish reversal off of post-float record highs is significant with the market now looking to carve out a major top. Next key support comes in by 1.0390, with a break and close below this level to trigger a more significant topping formation that will project deeper setbacks below parity and towards 0.9800 over the coming days. In the interim, look for intraday rallies to be well capped in the 1.0700 area.

New Zealand Dollar / US Dollar

Daily

Prepared by Jamie Saettele, CMT

Jamie –The NZDUSD is also plummeting and has reached a level that one would expect to serve as strong support. The level is defined by the 50 day average, trendline that connects the 2011 lows, June high, and July congestion. Like the AUDUSD, the near term move appears a bit overdone and strength would encounter resistance at 8460 and 8540.

Joel – The latest violent bearish reversal off of post-float record highs is significant with the market now looking to carve out a major top. Next key support comes in by 0.8250, with a break and close below this level to trigger a more significant topping formation that will project deeper setbacks towards the 0.8000 handle over the coming days. In the interim, look for intraday rallies to be well capped in the 0.8500 area.

US Dollar / Japanese Yen

Daily

Prepared by Jamie Saettele, CMT

Jamie – “Technically, the USDJPY needs to overcome 8147 in order for the series of lower highs since April to be broken. This area is likely to prove formidable as it is reinforced by the 200 day average (currently 8175).” We’ve yet to reach that level as price was turned back at the 50 day average / lows in May and June. Until price can overcome 8147, I am skeptical of attempts to prop up the exchange rate.

Joel – Setbacks have stalled out just ahead of the 76.25 record lows from March, with the market dropping to 76.30 ahead of the latest sharp reversal. The bounce is somewhat significant on a short-term basis, with the market showing just how well it is supported down by 76.00. Given that we are seeing the rate by record lows, we would not at all be surprised to see the formation of a material base in favor of significant upside back towards the 82.00 area over the coming sessions. Thursday’s surge back through 80.00 confirms bias and should accelerate. In the interim, any intraday setbacks should now be well supported above 78.00.

US Dollar / Canadian Dollar

Daily

Prepared by Jamie Saettele, CMT

Jamie – The USDCAD has reached its 200 day average – price was at its lowest level since 2007 just last week! The 200 day average turned the June rally but that outcome seems unlikely this time around. Exceeding the June high would put a double bottom in place with the April and July lows, and indicate a significant shift in the larger trend.

Joel – The market has put in an impressive recovery since posting fresh yearly lows by 0.9400 several days back and while the bounce has been significant on a short-term basis, scope still exists for additional gains ahead with medium and longer-term studies still very much on the oversold side. The 200-Day SMA comes in by the 0.9800 figure and a break and close back above this longer-term moving average will open the door for a more sizable shift in the overall construct of the market.

US Dollar / Swiss Franc

Daily

Prepared by Jamie Saettele, CMT

Jamie – “The USDCHF has plummeted to fresh record lows and reached an area that is defined by a 7 year trendline and 3 long term Fibonacci extensions (extended off of the 2005-2008, 2008-2009, and 2010 declines).” The train keeps rolling and the next objective is the 161.8% extension of the move from the July high, at 7553. Watch the short term channel for support as well.

Joel – Despite the intense downtrend resulting in recently established fresh record lows by 0.7600, short/medium/longer-term technical studies are looking quite stretched to us, and we continue to like the idea of taking shots at buying in anticipation of a major base. Still, at this point, fading this trend will require some upside confirmation and we would look for a break back above 0.7860 at a minimum to open the door for these reversal prospects and alleviate immediate downside pressures.

Euro / Japanese Yen

Daily

Prepared by Jamie Saettele, CMT

Jamie – Japan has intervened to stem the rise of the Yen which must be considered when viewing any Yen chart but recent technical action warned of a turn nonetheless. I wrote Wednesday that “the EURJPY has dropped below its July low but there is slight divergence with RSI so don’t get too excited about the latest decline. Additional support comes in at the channel line and 100% extension if needed. A move back to the late July high / 200 and 50 day averages is viewed as likely.” The 200 day average was met following the MoF intervention efforts but the EURJPY was turned back. The decline has found support at former resistance (11050) and it is possible that an important low is in place at 10870 but the Yen’s performance is mixed following intervention. As such, I’m skeptical of the turn as long as price is below 11416. Of note of course is the RSI signal that is flashing on the daily right now (red dot). I’ll be teaching techniques such as this at the FXCM Expo in September.

Joel – Any pullbacks below 110.00 continue to be very well supported by the previous multi-day resistance area from May 2010 through February 2011. Look for a fresh medium-term higher low to carve out around 110.00 ahead of the next major upside extension back towards and eventually through the recent highs by 123.35. Ultimately, only a sustained break below 110.00 concerns.

Euro / British Pound

Daily

Prepared by Jamie Saettele, CMT

Jamie – After breaking through one trendline support, the EURGBP has dropped to test another trendline support along with the 200 day average. The confluence of these 2 metrics would figure to reinforce the level. While I do favor the downside on a weekly and monthly basis, a bounce from here seems probable. Resistance is 8760 and 8805.

Joel – With the market once again stalling out above the 0.9000 psychological barrier, we could very well be seeing the formation of yet another medium-term top. Look for the recent close back below 0.8700 to confirm topping bias and accelerate declines towards 0.8300 further down. Next key support comes in by 0.8610, while rallies from here should be well capped ahead of 0.8800. Only back above 0.9050 ultimately negates.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Monday), technical analysis of currency crosseson Wednesday and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forex Stream. A graduate of Bucknell University, he holds the Chartered Market Technician (CMT) designation from the Market Technician Association. He is the author of Sentiment in the Forex Market. Send requests to receive his reports via email to jsaettele@dailyfx.com.

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