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Daily Observations: July 24, 2012

Daily Observations: July 24, 2012

Christopher Vecchio, CFA, Senior Strategist

Current Positions:

- Short AUDUSD from 1.0425, Stop at Breakeven

- Short AUDNZD from 1.3017, Stop at 1.3065, Target 1.2850

- Short GBPJPY from 123.63 (Closed 1/2 at 121.42 for +221-pips), Stop at 122.60 on remaining

- Long EURCHF from 1.2018

- Pending Long USDJPY >80.65

- 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.

- AUDNZD: The high beta cross is sitting at a pivotal level now above 1.3000, where resistance has held on two previous tests dating back to March 6. Now, with price in the resistance zone (1.3010-1.3060) and daily RSI showing signs of exhaustion to the upside (nearing overbought levels), the pair looks primed for a pullback. Additionally, it appears that the AUDNZD is in a massive Ascending Triangle off of the 2012 highs, which I’m reading as a continuation pattern; the D-E leg has been completed. I’ve gone short at market with a Stop above the former Triangle highs at 1.3065 and will look for a swing to ascending trendline support at 1.2850. Bias: bearish.

- AUDUSD: The pair is respecting an ascending channel off of the June 20 and July 5 highs, hitting resistance on Thursday/Friday leading to the sell-off today. The AUDUSD has hit interim support at 1.0270/80 (10-DMA, 200-DMA). A close below this confluence signals further losses to the 20-DMA and TL support (June 1 and July 12 lows) at 1.0225/35. I do think that a bit of a pullback is warranted, however, and we could see the pair trade back up into 1.0330 before another sell-off. Bias: bearish.

- EURJPY:The pair has completed its measured Head & Shoulders move from 98.60 to 95.60 (from the 101.60 Head, 98.60 Neckline) and technically, the pair is oversold on short-term charts; we thus expect some consolidation if not a bounce before a further sell-off. Furthermore, with chatter from Japanese officials rising, we appear to have exited our long-JPY trade at an ideal time. We will look to resell on a rally but the trend is definitively down now that the pair has broken its lowest levels in over a decade. Bias: bearish.

- EURUSD: The pair has held below the 1.2100 figure for most of the session, with little relief expected and any intraday strength should be sold. 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. With an Inside Day forming, which means we could be seeing a short-term shift in trend readying, near-term resistance comes in at 1.2165/80, 1.2255/65 and 1.2330/50. Above that, interest lies 1.2400, and the crucial 1.2440/80 zone (Symmetrical Triangle support). Support comes in at 1.2080/85 (Bollinger Band, new July lows) and 1.2000. We expect buying interest around the psychologically significant 1.2000 figure, and rallies above 1.2300 should be sold. Bias: bearish.

- GBPUSD: The 10- and 20-DMAs broke with ease yesterday and the pair has consolidated around the 1.5500 handle thus far on Tuesday. We expect further losses as a steep rising trendline has now been broken. Near-term resistance comes in at 1.5570/85 (10-DMA, 20-DMA) and 1.5600/15 (50-DMA). Near-term support comes in at 1.5460/65 then 1.5390/1.5405 (monthly low, Bollinger Band). Bias: bearish.

- 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 daily close below 78.60 suggests that the pair could trade as low as 78.15/25 before buying interest returns. 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 79.05/10 (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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