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Daily Observations: July 25, 2012

Daily Observations: July 25, 2012

Christopher Vecchio, CFA, Senior Strategist

Current Positions:

- Short AUDNZD from 1.3060, Stop at 1.3080, Target 1 at 1.2850

- Short AUDUSD from 1.0290, Stop at 1.0340, Target 1 at 1.0240, Target 2 at 1.0190

- Long EURCHF from 1.2018, Stop at 1.1990, Target 1 at 1.2500, Target 2 at 1.2750

- Short GBPJPY (1/2) from 123.63, Stop at 122.60, Target 2 at 120.00, Target 3 at 118.80

- Long USDJPY from 78.22, Stop at 77.60, Target 1 at 78.60, Target 2 at 79.40, Target 3 at 80.60

Pending Positions:

- Pending Short EURUSD at 1.2220/40

- 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. While my initial position was taken out for a small loss, I remain adamant in shorting this pair and have begun to reshort once more (details above). 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 hit support at 1.0180/95 (channel support, 100-DMA) and has rebounded sharply, back to interim resistance at 1.0275/85 (10-DMA, 200-DMA). If there is a daily close above said level, the scope for gains is as high as 1.0500, given the ascending channel in place. Bias: neutral.

- 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: After dipping as low as 1.2042 on Tuesday, the pair has since rebounded towards former yearly lows (and July swing lows) at 1.2160/70. The bounce comes on hopeful comments, so we expect the move to be faded. Near-term resistance comes in at 1.2160/70 then 1.2195/1.2200 (10-DMA). Further above, 1.2220/60 is chocked full of hourly resistance/support; daily advances should be capped in this area and should be sold. Support comes in at 1.2110/15 and 1.2040/50 (Bollinger Band, new July lows). We expect buying interest around the psychologically significant 1.2000 figure. 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. Bias: bearish.

- GBPUSD: Yesterday’s Inside Day yielded some price action to the upside but advances have been stunted by the poor second quarter growth reading for the British economy. The 10- and 20-DMAs broke with ease on Monday and the GBPUSD has consolidated around the 1.5500 handle thus far todau. We expect further losses as a steep rising trendline has now been broken. Near-term resistance comes in at 1.5570/85 (trendline resistance, 10-DMA, 20-DMA, 50-DMA) and 1.5600. Near-term support comes in at 1.5460/70 (coincidentally today’s low) 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. Watch the 5-DMA (78.35) for advances; the USDJPY hasn’t closed above the 5-DMA since July 11. 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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