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Daily Observations: July 12, 2012

Daily Observations: July 12, 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. Bias: bearish.

- AUDUSD: The Aussie employment report has crushed this pair, sending it to its lowest level since the Euro-zone Summit results were announced. The pair is close to breaking its 10-DMA, 20-DMA, and its lower Bollinger Band all in one fell swoop today after being rejected at the 200-DMA, which is a bearish warning. Near-term resistance comes in at 1.0155/60 and 1.0210. Support now comes in at 1.0120/25, 1.0080 (former intraday swing highs), and 1.0000/05 (50-DMA). I remain short from 1.0265 and will take profit at parity before a bounce. Bias: bearish.

- 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. I’ve moved my Stop for ½ of the position to 97.55 to lock in +100-pips in the event of a pullback. Bias: bearish.

- EURUSD: The short-term relief we were looking for materialized yesterday, with the pair trading back up towards 1.2300 before beginning the next leg of its sell-off. With no relief in sight, fundamentally, the EURUSD could tumble precipitously as the US Dollar’s outlook improves. Although hourly technicals are looking overextended, near-term resistance comes in at 1.2230/35 and 1.2285/90. Above that, interest lies at 1.2360/65, 1.2400, and the crucial 1.2440/80 zone (Symmetrical Triangle support). Support comes in the 1.2140/60 zone then 1.2075 (Bollinger Band). Given the measured move and Fibonacci extensions, we are looking for a move towards 1.1695-1.1875 over the next eight-weeks. Bias: bearish.

- GBPUSD: Advances have been capped by the 10-DMA, most recently at 1.5571 yesterday (also the mid-point for the Bollinger Bands). New monthly lows were set today at 1.5440, suggesting that the seasonal trend in place will remain into next week. A daily close above 1.5580 reverses this trend and suggests a test of the monthly high at 1.5720/25. Near-term support comes in at 1.5460 then 1.5390 (Bollinger Band). Bias: bearish.

- 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 78.95/79.00 (200-DMA). Price action to remain range bound as long as advances are capped by 80.60/70. Bias: neutral.

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

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, send an e-mail with subject line "Distribution List" to cvecchio@dailyfx.com

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