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Christopher Vecchio's Analyst Pick

Christopher Vecchio's Analyst Pick

Christopher Vecchio, CFA, Senior Strategist

Chinese GDP disappointed to the downside last night, and if you've been following me on the RTN, you'd have seen that I was leaning that way headed into the print. The models I was looking at suggested 8.0% in the bear case, 8.5% in the bull case (very bullish was 8.7% max); so heading into the print I was very comfortable being short the AUD.

With that said, it's time to look forward and I remain bearish on the Australian Dollar. I don't think the better than expected industrial production data of China was enough to feel at ease over global growth prospects. I now look towards the RBA minutes on Tuesday to either hinder any advances by the AUD. It is worth noting that the AUD fell sharply after the last rate decision on the rhetoric from the statement, so I have little/no reason to believe that we'll see anything different.

Here are my general market observations on currencies I've been following closely the past few days:

- AUDUSD: The pair failed to break the April high at 1.0464 on the rally ahead of the China GDP decision, and the negative sentiment around the report has dragged the pair back under the key 1.0400 level (ascending TL on October and November 2011 lows). Support now lies at 1.0378 (200-DMA), 1.0340 (former channel TL resistance), 1.0300, and the montly low at 1.0225. Resistance above comes in at 1.0400 (ascending TL on October and November 2011 lows), 1.0419 (100-DMA), 1.0451 (weekly high), and 1.0464 (April high). A breach of 1.0464 would mark an intramonth reversal and we would look higher from there towards 1.0510/15 and 1.0560.

- AUDJPY: The pair has been range bound like the AUDUSD, but it has not broken out of its range as the Japanese Yen has been stronger than the US Dollar recently. Given current price (84.20), resistance overhead comes in at 84.80 (weekly high, descending channel resistance on March 20 and 27 highs), 85.17 (last swing high), and Near-term support now lies at 84.08 (50-HMA), 83.76 (100-HMA), and 83.35/40.

- EURJPY: While yesterday's price action yielded a break of the steep descending channel that has been in place since the start of the month, there was little follow through today as the pair failed to climb above its 50-DMA (107.09) and accordingly its previous swing high of 107.45. For now, it appears that we're in a bear flag pattern (consolidation before a break lower) and we should continue to eye levels to the downside. Support today came in at 105.74, a shade below the 200-DMA (105.78). Supports lower eye 104.40/45 and 104.02 (100-DMA). Should we clear 107.45 (former swing high), resistance comes in at 108.67 (20-DMA) and 109.70 (former swing high).

- EURUSD: A long-term descending channel remains in place off of the August and October 2011 highs / the October 2011 and January 2012 lows. The rally off of the January low failed to reach to ever-elusive 1.3500 level, and for the better part of the last two months, we've been stuck in an intermediate bullish contracting wedge (or triangle). While this would suggest a break to the upside, the longer-term techs - the range previously mentioned - are to be respected. As I noted yesterday, "Resistance to the upside lies at the 20-/50-DMA confluence at 1.3210/15. Supports now 1.3134 (100-DMA) and 1.3030/40 (weekly low, wedge support)." After stalling briefly at 1.3134 following the US CPI print, we've broken lower (currently 1.3076). Support remains at 1.3030/40, and a break targets 1.2975 then 1.2626.

Any other trade ideas and general macroeconomic musings can be found in the Real Time Newsfeed, or by following me on twitter @CVecchioFX.

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