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Daily Observations: July 18, 2012

Daily Observations: July 18, 2012

2012-07-18 13:52:00
Christopher Vecchio, CFA, Senior Strategist
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Current Positions:

- Short EURJPY from 98.55

- Short GBPJPY from 123.63

- Long USDJPY from 79.11

- Long EURCHF from 1.2018

- Pending Short AUDUSD

- 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 pair has leaked lower thus far on Monday, failing once again at the 100-DMA. Near-term resistance comes in at 1.0280/85 and 1.0325/30. A 4-hour close above 1.0325/30 suggests further upside towards 1.0385. Support now comes in at 1.0135/55, 1.0095/1.0105, 1.0080 (former intraday swing highs), and 1.0005/10 (50-DMA). My short from 1.0265 was stopped out at breakeven so I’m looking to reenter short with respect to 1.0330 as my line in the sand for bullish/bearish bias; we remain below thus far. 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 3/4 of the position to 97.55 to lock in +100-pips in the event of a pullback; 1/4 profit was taken yesterday at 96.25 for +230-pips. I will resell rallies into 97.50 with my Stop at 97.60 at present time. Bias: bearish.

- EURUSD: Short-term technical stress has been relieved following Friday’s rally off of the fresh yearly lows set at 1.2161. We remain bearish as the EURUSD has yet to complete its measured move from its May 1 decline, and over the coming six-weeks, we are looking for a sell-off into 1.1695-1.1875. Near-term resistance comes in at 1.2285/90 and 1.2360/65. Above that, interest lies 1.2400, and the crucial 1.2440/80 zone (Symmetrical Triangle support). Support comes in at 1.2250/60, the 1.2155/65 zone then 1.2120/25 (Bollinger Band). Bias: bearish.

- GBPUSD: The pair has fought back to its 50-DMA today but has yet to make any sustainable progress above said level at 1.5640/45. With new monthly lows set last week at 1.5390/95, we suspect the trend is lower in the near-term. However, the daily close yesterday above 1.5580 suggests that we could see further upside in the GBPUSD. Near-term support comes in at 1.5460/65 then 1.5390/1.5405 (monthly low, Bollinger Band). A 4-hour close below 1.5645, given some slight RSI divergence and an overbought reading, suggests a move towards 1.5375. 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 79.00/05 (200-DMA). Price action to remain range bound as long as advances are capped by 80.60/70. I’ve started buying USDJPY below 79.20 as the pair flirts with its 200-DMA at 79.05/10 – I will cut my losses quickly if price trades below 78.60. Bias: bullish.

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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