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Daily Observations: July 4, 2012

Daily Observations: July 4, 2012

Christopher Vecchio, CFA, Senior Strategist

Advances by the Australian Dollar and the Euro have remained capped today (again), with significant near-term resistance just overhead as well as the fundamental overhand of the Euro-zone Summit weighing on risk-appetite. I’m expecting some consolidation in the days ahead of the crucial Bank of England and European Central Bank rate decisions, and of course, the always market moving Nonfarm Payrolls report.

- AUDUSD: The AUDUSD hit its highest level since May 3 today, but the pair has since pulled back towards its 100-DMA, which it posted its first daily close above yesterday since April 27. Two consecutive closes give scope for a move higher towards 1.0365/85. Near-term support comes in at 1.0250/60 (200-DMA, 100-DMA) and then the weekly low at 1.0210/15. A move below would signal an intraweek reversal and signal further losses.

- EURUSD: The EURUSD’s consolidation and failure to set fresh highs in the wake of the Euro-zone Summit play into the budding Symmetrical Triangle on the daily chart. For now, we are looking for a pullback towards 1.2480 before the direction of the triangle is determined. Resistance to the upside comes in at 1.2700/15 (Bollinger Band, 50-DMA), and a break above suggests a test of 1.2745/50 (June high) then 1.2820. Triangle support comes in at 1.2480, and a move lower points to 1.2405/20.

- GBPUSD: The GBPUSD’s failure to achieve new highs in the post-Euro-zone Summit world draws into question the underlying strength of the Sterling, and the suggestion is that diverging monetary policies between the Bank of England and the Federal Reserve (with the Bank of England increasingly dovish and the Federal Reserve in wait-and-see mode) are hurting the pair. Fresh weekly lows were set today at 1.5630, suggesting further losses ahead. Resistance comes in at the weekly high at 1.5720/25 then confluence at 1.5735/40 (Bollinger Band) and 1.5750/65 (200-DMA, 50-DMA). Near-term support lies at 1.5600/05 (20-DMA) and 1.5580/85 (38.2% Fibo retracement on June 1 low to June 20 high move).

- 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.