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FX Technical Weekly
Friday, 18 September 2009 20:41:44 GMT  |  Jamie Saettele, Senior Currency Strategist, Joel Kruger, Technical Currency Strategist
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The GBPUSD and GBPJPY exhibit the clearest mutli month classical patterns (potential head and shoulders and double top).  1.4850 is a level to watch for a reversal in the EURUSD.  The USDJPY is breaking through a steep resistance line; a short covering rally could reach the mid 93.00s. 

 EURO / US DOLLAR

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Joel: While it is premature to call for a meaningful medium-term top at current levels, a negative close on Friday would set up a bearish reversal day following an intense rally to fresh 2009 highs by 1.4770 on Thursday.  We had written in the previous week that we felt any rallies above 1.4700 would not last and we could finally be seeing this play out. A close on Friday below 1.4740 will help to reaffirm bias and should accelerate declines back into the 1.4300’s at a minimum. Back above 1.4770 delays.    
Jamie: Above the December 2008 high satisfies the minimum requirement for wave C.  1.4850 (100% extension) is a potential reversal point.  In the event of a blow-off, the line extended from the March and June highs is also a potential target; that line is at 1.5240 next week.  The EURUSD looks heavy…RSI is above 70, divergent with the December high and former trendline support is now resistance (red circle).  Also, the break above 1.4450 was from a triangle and triangles precede terminal moves.  Structure of the rally from 1.4500 confirms the terminal nature of the advance, which is unfolding as an ending diagonal.  It’s possible that the rally is complete but watch 1.4850 in the event of one more push.

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 BRITISH POUND / US DOLLAR

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Joel: We continue to maintain a sell on rallies approach with the view that the pair has made a meaningful high above 1.7000 this year. The ensuing price action is more choppy consolidation with the market quite possibly in the process of carving the right shoulder of an h&s top that would project setbacks to 1.5000. Look for continued weakness over the coming days towards neckline support in the 1.6000 area.
Jamie: On the daily, a potential head and shoulders top is evident.  A short term head and shoulders (which comprises what may be the larger right shoulder), is confirmed.  Look to short on pullbacks to 1.6400/trendline resistance in anticipation of the break below the larger pattern neckline. 

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 AUSTRALIAN DOLLAR / US DOLLAR

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Joel: While the inter-day structure remains bullish, we contend the pair is overvalued at current levels and could be subject to a major corrective pullback over the coming weeks. Look for a bearish close below 0.8685 to confirm outlook and set the stage for some weakness over the coming days. Back above 0.8775 delays.
Jamie: The 78.6% of the decline from .9856-.6007, at .9032, is an area to watch if reached.  This level intersects with a potential resistance line on September 24.  It is possible that the rally from .7700 is an ending diagonal and that wave iv of that diagonal is underway towards .8476.  A short term trendline is being tested (circled) and price will open below next week.  It is worth taking a shot at the short side on this development - especially given wave count implications (wave C expected to end) and divergence with momentum.

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 NEW ZEALAND DOLLAR / US DOLLAR

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Joel: Our suspicion is that the market could now finally be in the process of carving out a meaningful top after posting fresh 2009 highs by 0.7155. Look for some weakness over the coming days with a break back below 0.6965 to confirm bias and accelerate declines. Back above 0.7155 delays. 
Jamie: Kiwi is top heavy.  Again, divergence warns of a reversal as does failure at a resistance line (circled).  Similar to the AUDUSD, the NZDUSD is testing a short term support line.  .6900 is potential support.  A push to a new high would expose .7250.  This is where the rally from .6193 would be equal to 61.8% of the .4890-.6601 rally.  The level also rests in between 2 prominent former pivots (.7222 and .7384). 

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 US DOLLAR / JAPANESE YEN

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Joel: While the overall structure remains intensely bearish, the recent break below 91.75 leaves daily studies in need of a healthy corrective bounce. Look for the weekly 90.10 (coincides with 78.6% fib retrace of yearly low-high) lows to hold for now ahead of some corrective upside over the coming days back towards 93.30.
 
Jamie: Keep the long term outlook in perspective - “a 4th triangle ended in 2007 above 124.00 thus the decline from that level is viewed as a 5th wave that will not be considered complete until price drops to an all-time low (below the 1995 low near 80).”  Near term, the USDJPY is poking above trendline resistance.  The week carved out a key reversal as well (new low, close above prior week’s close).  Former support at 93.40 is now probable resistance.

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 US DOLLAR / CANADIAN DOLLAR

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Joel: Price action has been extremely choppy and the recovery that we had anticipated out from the 1.0600’s has not gone as smoothly as we had hoped. Nevertheless, our core bias is constructive and we continue to look for the formation of a medium-term higher low by 1.0600 and above the 2007 historic 0.9055 lows, ahead of fresh upside into the 1.2000’s.
Jamie: Barring a break above the resistance line, the USDCAD is vulnerable to a drop towards 1.0330 - which has been both support and resistance over the last several years.  This level is also the 61.8% extension of the 1.3068-1.0782 decline (from 1.1730).  Thus far, the 61.8% retracement of the rally from .9055 has held.  The circled area could be a triangle, in which event the immediate move is higher towards 1.1100.

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 US DOLLAR / SWISS FRANC

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Joel: The multi-week prominent range trade has now been broken to the downside with the market taking out psychological barriers at 1.0500 and descending to fresh 2009 lows into the 1.0300’s thus far. However, with daily studies now oversold, any additional declines are seen limited to the 1.0200 figure (which also represents the 78.6% fib retrace of the major 2008 low-highs), in favor of a sizeable corrective bounce back towards the 1.0700-10900 area over the coming weeks.
Jamie: Like the EURUSD, the minimum requirement (below 1.0367) for wave C has been met.  There is divergence but nothing resembling a constructive base at this point.  1.0037 (100% extension) remains a potential reversal point.  
 

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 EURO / JAPANESE YEN

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Joel: Confined to the middle of a multi-week range, with the market most recently failing by the range highs ahead of 140.00 and rolling back over. Our bias is mildly bearish over the coming weeks and we look for a drop back into the lower range by 125.00-127.00
Jamie:  At this point, we don’t know if the EURJPY (and all Yen crosses for that matter) range that has consumed the past many months is a consolidation or reversal pattern.  I mentioned Wednesday that “bulls should keep stops below 131.00.  The rally from there is impulsive so a rally is expected to clear 134.45 regardless of the larger trend.”  Risk can now be moved to 132.44 on the break of a short term resistance line.  Potential support is at 133.40 but focus is now on 136.13.          
 

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 BRITISH POUND / JAPANESE YEN

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Joel: Could be looking set for a major bearish continuation after stalling out by fresh 2009 highs at 163.10. The latest pullback now brings a potential double top formation into the picture which could open an initial move towards neckline support at 146.80. Below 146.80 triggers the double top and exposes the 138.00 area. Above 163.05 negates.
Jamie: A break below 146.74 would confirm a significant double top near 163.00.  However, there is the possibility of a sizeable rally prior to a test and break of 146.74.  The decline from 163.15 counts well as an impulse and price action since 149.00 (9/2 low) may be carving out an expanded flat (which seem to be common in Yen crosses).  Trading above trendline resistance would make this scenario favored.  The target would then be above 153.24.
 

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 EURO / BRITISH POUND

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Joel: In the previous week we had written of any rallies looking to stall out in the 0.8700-0.8800 area and for now our expectations have been slightly exceeded with the market rallying back above 0.9000. Nevertheless, the current rally is still classed as corrective and with daily studies now overbought, we look for a bearish resumption over the coming days.
Jamie:  Consolidation/pullback will likely find support at .9015, .8975, and .8940.  .8703 is the bull defining level.  .9269 and .9507 are target areas.  I have labeled the decline from .9807 as A-B-C, which is corrective.  However, the decline could also be the first part of a larger consolidation such as a triangle or flat.  Keep this mind as the EURGBP approaches the mentioned points (.9269 and .9507).

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TRADE LIST *Entry prices for trades that are recommended ‘at market’ are listed as the price at the time of publication

 

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