daily technicals

Euro Volatility Is Historically Low

Tuesday, 03 October 2006 11:46:24 GMT  |  Jamie Saettele, Currency Analyst

• Euro Lowest Volatility Ever
• Japanese Yen Turns
• British Pound Nearing Fibo Resistance
• Swiss Franc Ascending Triangle
• Canadian Dollar Possible Head and Shoulders Pattern
• Australian Dollar Below 200 Day SMA
• New Zealand Dollar Near Fibo Resistance

EURUSD – The EURUSD has traded between 1.2630 and 1.2829 for the last month – and lulled just about every market participant to sleep in the process.  However, periods of low volatility are followed by breakouts so now is the time to keep an eye on price action.  Bollinger band width indicates the extent to which volatility has contracted.  It is interesting to note that this is the tightest the bands have ever been for EURUSD (since the advent of the euro in 1999).  Going back 10 years with synthetic prices, there are only two instances when volatility was this low – December 1996 and August 1998.  Both instances led to breakouts within 2 weeks and moves of over 1,000 pips in less than 2 months



USDJPY – We remarked yesterday that “oscillators are divergent with price and overbought on both daily and intraday charts – which leaves longs vulnerable to a pullback / reversal.”  The USDJPY did pierce the 9/18 high at 118.28 but then fell nearly 100 pips to 117.50.  A short term trendline drawn through 113.95 and 115.55 is at the 117.00 figure today.  A break below there could trigger heavier selling to the 9/22 low at 116.07.  Yesterday’s high at 118.39 is resistance.



GBPUSD – Cable’s rally is just shy of the 61.8% of 1.9072-1.8632 at 1.8903.  Scope remains for a move through there and a test of the 78.6% at 1.8978 as 240 minute RSI is rising but not yet overbought.  A dip to and below 1.8762, a pivot high from Sunday night, would suggest that the correction of weakness is over and that the downtrend is back underway.



USDCHF – Little has changed regarding the USDCHF.  It still appears that a bullish ascending triangle is forming from the 5/15 low at 1.1919.  The supporting line from the triangle is at 1.2312 today.  Yesterday’s low held at the 1.2400 figure, just above the 61.8% of 1.2288-1.2567 at 1.2395.  The horizontal line from the ascending triangle is resistance at the 1.2595/1.2622 zone. 




USDCAD– We have maintained a bullish stance against 1.1028 due to the 5 wave rally from 1.1028 to 1.1294 and the subsequent 3 wave decline from 1.1294 to 1.1085.  However, a head and shoulders pattern on the daily clouds the picture.  The neckline is near 1.1061 – a break below would complete the pattern.  Due to the presence of the h & s pattern, it is best for bulls to limit risk to the 9/28 low at 1.1085.  A break above 1.1294 instills confidence in what is now a cautious bullish bias.



AUDUSD – We have continues to reiterate that probability favors a break lower rather than higher.  The pair broke below the range low at .7481.  Former support at .7481 held as resistance yesterday.  The AUDUSD is just below the 200 day SMA and the slope of the moving average is barely positive (by 1 pip).  The break of the .7481 range low and the move below the 200 day SMA favors a longer term bearish bias.  A break below .7432 probes the 78.6% of .7270-.7721 at .7367.  .7491 is resistance.




NZDUSD – The decline that began on 9/26 has stalled just below the .6500 figure – reaching .6486 yesterday.  .6486 is the 61.8% of .6342-.6721.  The bounce that we looked for yesterday is playing out and the pair is close to the 61.8% fibo of .6721-.6486 at .6631.  A rally to there sets up a head and shoulders reversal pattern as well.  Only a push above.6721 negates the bearish bias.

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