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Daily Observations: July 2, 2012

Daily Observations: July 2, 2012

Christopher Vecchio, CFA, Senior Strategist

Advances by the Australian Dollar and the Euro have remained capped today, with significant near-term resistance just overhead as well as the fundamental overhand of the Euro-zone Summit weighing on risk-appetite. At the time of writing, the US Dollar was picking up steam across the board and the Japanese Yen was the top performer, perhaps a sign of incoming risk-aversion. Nonetheless, as long as European peripheral yields continue to fall risk-appetite should be supported in the near-term.

- AUDUSD: While our fundamental outlook for the AUDUSD is bearish long-term, we respect the recent rally off of the June 1 low and identify the move as impulsive (we can identify 5 waves up from the June 1 low). With that said, this advance thus appears to be in its final stages, and the confluence of resistance in close proximity to current price should hinder gains. 1.0265/90 (Bollinger Bank, 100-DMA) should attract sellers as should the budding RSI divergence on the 4-hour charts. Price remains supported above 1.0125.

- EURUSD: While we remain long-term bears given the descending channel in place off of the August and October 2011 highs (with the parallel channel drawn to the October 2011 and January 2012 lows), the fundamental shift in the Euro-zone’s approach to the crisis has given way to the potential for further rallies ahead. A confluence of resistance lies above, at 1.2715/30 (Bollinger Band, 50-DMA) and at 1.2740/50 (June 2012 highs). A break above this zone suggests further upside to 1.2820. Near-term support comes in at 1.2560 (20-DMA).

- GBPUSD:The GBPUSD remains constructive in the near-term but advances look to be capped by the confluence of key moving averages around 1.5750. Furthermore, a retest of 1.5775/80 when considered in context of the moving averages in the area should see some sellers return to the market. Advances should be capped by 1.5745/50 (200-DMA) and then 1.5775/85 (June high, 50-DMA). Declines into 1.5815/20 (100-DMA) should be supported.

- USDJPY: The USDJPY is working on an Inverted Head & Shoulders pattern off of the June 1 low, with the neckline coming in at 80.60/70. Only a daily close above this level will signal the commencement of this pattern. With the Head at 77.60/70, this suggests a measured move towards 83.60/70 once initiated. Near-term support comes in at 78.85/90 (200-DMA). Price action to remain range bound as long as advances are capped by 80.60/70.

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

--- Written by Christopher Vecchio, Currency Analyst

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.