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Christopher Vecchio's Analyst Pick

Christopher Vecchio's Analyst Pick

2012-05-02 18:34:00
Christopher Vecchio, CFA, Senior Strategist
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Risk-aversion continues to be the prevailing trend though the US Dollar has given back much of its gains as the day has proceeded. With that said, going into the European Central Bank meeting tomorrow, I remain bullish the US Dollar and bearish the Euro. While I will NOT be taking a short Euro position (against anything) ahead of the release, I will look to sell a Euro bounce or sell a Euro sell-off. I have zero interest in buying the Euro at current levels and given the combination of poor fundamentals and technicals, it looks like we're getting ready for the next big move lower.

My outlook for my "big three" currencies - AUDJPY (given correlation to S&P 500), AUDUSD (proxy for China), and EURUSD (European crisis) - has changed little from yesterday.

- AUDJPY: In light of the failed Bank of Japan effort to weaken the Japanese Yen and the RBA's rate cut, any upward progress made by the pair has been undercut and looks poised to to make a move towards fresh lows unseen since early Febryary. The break of the 100-DMA is a big deal, as this level was held on each of the prior attempts of breaking through. For now, this is our interim resistance. I prefer selling rallies into 83.10 with a stop above the 20-DMA (83.87).

- AUDUSD: While the US Dollar has been hurt by recent Fed commentary and the poor US GDP print, as mentioned in the AUDJPY comment, the RBA has crushed any upward momentum that AUD had. The break of the 200-DMA (1.0355) is not that significant considering the pair really hasn't respected the level; but it bears mentioning. Support now lies in 1.0290/305 zone, given the former TL resistance on the March 2 and April 13 highs has now become support. A break lines up a test of 1.0260, the ascending TL on the April 11 and April 24 lows.

- 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. Given current price (1.3236), resistance to the upside comes in at 1.3270/80 (swing high, TL resistance). Support now comes back at 1.3154 (20-DMA), 1.3114 (100-DMA), 1.3055/70 (wedge support), 1.2975/95 (February low, April low), and 1.2855/70 (former support/resistance zone). Again, I favor downside price action now that we've seen a breach of the floor of the daily triangle that has been in place since mid-February.

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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