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Christopher Vecchio's Analyst Pick

Christopher Vecchio's Analyst Pick

2012-05-03 21:54:00
Christopher Vecchio, CFA, Senior Strategist

Risk-aversion remained in place today across the board but for the Euro, which was aided by an ECB that chose not to implement more measures. Considering that the crisis in Europe has shifted to a crisis of confidence from a liquidity crisis, the ECB remaining steadfast in its position does little to invoke confidence going forward. In fact, but for the US nonfarm payrolls report tomorrow, I'd be very interested in shorting EURUSD; instead, I'm looking at EURCAD and EURGBP.

- AUDJPY: The pair continues to trod along the former descending TL resistance on the March 20 and March 27 highs, failing to close below the key support on each attempt the past four trading sessions. A move back into the channel will be met with support quickly, as the 200-DMA (81.08) lies just over 100-pips below current price (82.32). It's clear the Bank of Japan's measures have done little to dilute the Japanese Yen, and with the Reserve Bank of Australia on an increasingly dovish path, this pair continues to hold a bearish outlook. A substantially weaker Yen or stronger RBA will be necessary to prop this pair up - the only way I see that happening is if there is a blowout NFP print tomorrow, so much that the USDJPY would rally more than the AUDUSD would fall.

- AUDUSD: Unlike its closely correlated sister the AUDJPY, the AUDUSD has now moved back into its descending channel capped by the March 2 and April 13 highs. However, the downside is limited at the end of the week on a technical basis, with the pair trading right at ascending TL support on the April 11 and April 24 lows. A break and close below eyes the April low at 1.0225, then 1.0140/45 (January 9 swing low). A move higher is capped by moving average confluence (20-/200-DMA) at 1.0340/50.

- EURUSD: Ahead of the ECB rate decision today, the EURUSD plummeted below 1.31 for the first time since April 19. Still, the technical outlook is little changed. 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 (1.3150), resistance to the upside comes in at 1.3198 (50-DMA), 1.3270/80 (swing high, TL resistance). Support now comes back 1.3118 (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.

- USDJPY: The pair has struggled to find direction the past few sessions, failing to close above the April 16 swing low at 80.28 despite multiple intra-session piercings of said level. Likewise, the USDJPY hasn't been able to clear its 100-DMA (76.62) to the downside, a level which the pair has held above since February 9. Tomorrow's NFP print is key, but there's really two ways this works out: USDJPY rallies on a STRONG print; USDJPY plummets on a WEAK print. I'm a buyer of USDJPY at 79.10/15, the 61.8 Fibonacci retracement on the February low / March high rally.

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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