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Daily Observations: May 9, 2012

Daily Observations: May 9, 2012

Christopher Vecchio, CFA, Senior Strategist

Price action in the overnight has been very kind to my two positions, short AUDUSD and short EURUSD, as the combination of poor trade data out of Australia and further political posturing by Greece’s Syriza party has left market participants scrambling for safety. After adding to my AUDUSD short after the trade balance figures last night, I’m in from net 1.0186; I sold EURUSD at 1.3063 as per my comments in the RTN yesterday (looking for a rally back to the wedge ascending TL – former support – but not looking for the gap to close at 1.3082). With downside price action starting to accelerate, I’m going to be more cautious in my bearish bias as I think a panic spike low will yield a strong fade opportunity (think end of September, beginning of October price action).

- AUDJPY: I thought that the 200-DMA would serve as decent support but clearly this is a level that is just not being respected at present time. With commodities in full-on liquidation mode (Gold breaking $1600/oz, Crude Oil below $96/brl), the growth-linked AUDJPY has been absolutely hammered, falling seven of the past nice trading sessions. As noted yesterday, “a close below 81.00 should yield a move to 80.50/55 (former swing high),” and that’s where we’ve found support thus far today. A continuation through this level should yield 79.70, but it’s possible that we bounce back to the 200-DMA (81.05). A move back above said level exposes 82.00 as the next level of significant resistance. I favor further downside.

- AUDUSD: The Aussie liquidation continues here, with the AUDUSD facing significant downside pressure to start the week. A failure to break Monday’s high while simultaneously setting fresh May lows leads me to believe that we’re likely to move lower first before we bounce, at least technically. The key level I’m watching is 1.0015 (parallel descending TL on April 4 low from February 29 and April 27 highs). Parity should also be a tough level to crack. I’ll look to sell rallies into 1.0125. I favor further downside.

- EURUSD: The bearish wedge is starting to breakout to the downside, as expected. I advocated getting short on a bounce to 1.3065 yesterday, as that represents the wedge’s former support (now turned resistance). On a break below 1.3000 I’m looking towards 1.2970/75 (former swing low), 1.2950/55 (May low), 1.2870/85 (former high/low swings), and 1.2625/30 (yearly low). A move to the topside is the ‘harder’ path, with resistance at 1.3065 (wedge former support), 1.3115/20 (100-DMA), 1.3175/80 (Thursday/Friday highs, 50-DMA), and 1.3260/80 (wedge descending TL resistance). I favor further downside price action and look to sell rallies into 1.3065.

- USDJPY: The pair remains supported by its 100-DMA (now 79.67), a level that it hasn’t closed below since February 8. The tug-and-pull between the Federal Reserve’s QE program and the Bank of Japan’s recent ¥10 trillion stimulus package has kept the pair relatively stable the past several sessions, but a further move lower is expected. Currently, the USDJPY appears to be in a Wave 5 impulse lower, with a 5wave extension completing around 79.10/15, also the 61.8 Fibonacci retracement on the February low/March high move. I prefer staying on the sidelines until a move there, at which point I will get long. A break above 80.60 negates this view and suggests a test of 81.80.

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