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Daily Observations: July 19, 2012

Daily Observations: July 19, 2012

Christopher Vecchio, CFA, Senior Strategist

Current Positions:

- Short AUDUSD from 1.0425

- Short EURJPY from 98.55

- Short GBPJPY from 123.63

- Stopped out USDJPY at 78.60 from 79.11 for -51-pips

- Long EURCHF from 1.2018

- 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 is working higher in two separate ascending channels, hitting resistance at 1.0430 in the less steep of the two. A daily close above this level signals a rally further up into 1.0470/75 (April high). However, short-term charts are looking overextended at current price, so it’s possible there is some consolidation/downside price action before the next leg higher. Near-term support comes in at 1.0385, 1.0325/30, and 1.0135/55. 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 Monday 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: The EURUSD continues to flag higher, range bound with higher highs and higher lows, but that changes little when looking at the pair beyond just a few days. We remain bearish as the pair 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 1.2315/20 and 1.2360/65. Above that, interest lies 1.2400, and the crucial 1.2440/80 zone (Symmetrical Triangle support). Support comes in at 1.2255/65, 1.2200/05 (Bollinger Band), 1.2175/90 (lows from Monday and Tuesday), and 1.2160/65 (July lows). Bias: bearish.

- GBPUSD: The pair closed above its 50-DMA yesterday and broke out of a short-term descending channel, in what perhaps may be a Bull Flag on the 4-hour/daily charts. Near-term resistance comes in 1.5720/25 (former swing high), and a close above this level will signal the beginning of a measured move up towards 1.5890/1.5905. Above that, selling interest could return at 1.5745/50 (200-DMA) and 1.5775/80 (June high). Near-term support comes in at 1.5580, 1.5460/65 then 1.5390/1.5405 (monthly low, Bollinger Band). Bias: neutral.

- USDJPY: Is the USDJPY is working on an Inverted Head & Shoulders pattern off of the June 1 low? It certainly appeared so for a while there, but the bullish pattern is in question now that the Right Shoulder has broken as support, and our interest lies in seeing if there is a daily close below it at 78.60. If so, we suspect further losses towards 78.15/25. Still, as long as the Head at 77.60/70 holds, the pattern remains technically valid. With the Head at 77.60/70, this suggests a measured move towards 83.60/70 once initiated. Near-term resistance comes in at 79.00/05 (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

Follow him on Twitter at @CVecchioFX

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