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Daily Observations: July 10, 2012

Daily Observations: July 10, 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).

- 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 pair has started to rebound as expected as short-term oversold conditions have provided the necessity for some relief. The EURUSD rally should be capped in the near-term, with resistance overhead at 1.2360/65, 1.2400, and the crucial 1.2440/80 zone (Symmetrical Triangle support). Near-term support comes in at 1.2285/90. Given the measured move and Fibonacci extensions, we are looking for a move towards 1.1695-1.1875 over the next eight-weeks.

- GBPUSD: GBPUSD strength is materializing aided by some better than expected data out of the UK but bounces are to be sold. Oversold technical conditions are being relieved and the pair has started to trade into some near-term resistance at 1.5540/45. More important 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 1.5425/30 (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 78.85/90 (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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