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Daily Observations: July 9, 2012

Daily Observations: July 9, 2012

Christopher Vecchio, CFA, Senior Strategist

- AUDJPY: It appears that the pair has completed its Wave 4 rally off of the June 1 low at 74.45/50. The formation is neat considering the Wave 4 termination at 82.35/40 fell short of the Wave 1 termination at 82.48/50; this is imperative for the impulsive decline off the March highs. We now look to sell rallies for a test of the 2011 lows at 72.00/05. Near-term support comes in at 79.40/50 (former swing highs and lows) and then 78.35/50. Advances should be capped by 82.35/40; a break above this level signals a reversal and invalidates our bearish setup.

- AUDUSD: The pair has settled back below the crucial 1.0250/60 area (100-DMA, 200-DMA) and has since pulled back below the pivotal 1.0210/15 level. It thus appears, now that there was a new low set on Friday, that prices have reversed and further losses are ahead. Near-term resistance comes in at 1.0250/60 and 1.0325/30 (monthly high); a break above 1.0325/30 would signal a reversal and point to more gains towards 1.0365/85. Support now comes in at 1.0120/25 (20-DMA), 1.0080 (former intraday swing highs), and 1.0005/10 (50-DMA, Bollinger Band).

- EURJPY:A Head and Shoulders pattern appears to be in play on the 4-hour charts, and it looks very clean – perhaps my favorite setup right now. With the Head at 101.60/70 and the Neckline at 98.55/65, the measured move is for a test of 95.60; the yearly low comes in at 95.55/60. This is ideal because it suggests a 300-pips move before finding support at the yearly low – this is very clean. With the EUR oversold across many pairs, it’s likely we see some pullback towards the 98.55/65 Neckline; rallies should be used as selling opportunities.

- EURUSD: The Symmetrical Triangle on the daily chart has broken to the downside, and we have traded into our first level of support at 1.2285/90. The new yearly lows set on Friday and today at 1.2255/90 suggest further losses ahead; though with the pair significantly oversold even up to the 8-hour chart, it’s likely that, without a catalyst, the EURUSD consolidates or rallies in the periods ahead. Given the measured move and Fibonacci extensions, we are looking for a move towards 1.1695-1.1875 over the next eight-weeks. Resistance now comes in at 1.2440/80, former support on the Symmetrical Triangle.

- GBPUSD: Fresh news lows on Friday at 1.5460 have yielded little follow-through thus far on Monday, and it appears that we have the early stages of a Doji daily candle (also an Inside Day) at work on the daily chart. This would signal a near-term reversal and clear the way for some GBPUSD strength over the next few sessions. Resistance comes in at 1.5600/05 (20-DMA) then the monthly high at 1.5720/25. Near-term support comes in at 1.5460 then 1.5425 (Bollinger Band).

- 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 78.90/95 (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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