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Daily Observations: August 7, 2012

Daily Observations: August 7, 2012

Christopher Vecchio, CFA, Senior Strategist

Current Positions:

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

- Short AUDUSD 1.0585 (1/2), Stop at 1.0635, Target 1 at 1.0310/30

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

- Short EURGBP from 0.7942, Stop at 0.8010, Target 1 at 0.7750

- 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 Long USDJPY daily close >80.65

- Pending Long EURUSD daily close >1.2400/05

- AUDNZD: The pair has moved higher thus far today, after back-to-back Inverted Hammers after a decline, signaling a potential reversal over the coming days; this could negatively impact the short taken. However, we view this as merely a pause lower; rallies into 1.3005 should be sold. As per the original trade plan, on a test of 1.2850, I will take 1/2 profit and then resell rallies back into 1.2920/30. With my Stop at breakeven (1.3060), the current position is insulated from losses. Given the divergence between the AUD and the NZD recently, I’m looking to sell further rallies in this pair. Bias: bearish.

- AUDUSD: The AUDUSD continues to push its ascending channel trendline, moving as high as 1.0603 today, finally breaking last week’s post-ECB high of 1.0580 on the back of a decisively neutral Reserve Bank of Australia. The 4-hour RSI found support 50, suggesting that the uptrend is very much still intact; any further declines will need a fundamental catalyst; this is very plausible with significant Australian and Chinese event risk on the horizon. Near-term resistance comes in at 1.0580 (August high), 1.0600/05 and 1.0630. Support comes in at 1.0535/45 (former swing highs), 1.0480, 1.0435/45, and 1.0380/85. Bias: bearish.

- EURUSD: The pair is working on an Inside Day (with today’s highs and lows within yesterday’s highs and lows) given a lack of a fundamental catalyst on for either the Euro or the US Dollar; indeed, the underlying upside momentum from Friday keeps pushing the EURUSD higher. Accordingly, our outlook is little changed from yesterday, when fresh monthly highs were set at 1.2440/45, a full 400-pips off the 2012 yearly low set just two-weeks ago. Failure above 1.2400 is critical, however, considering the potential for an Inverse Head & Shoulders off the bottom. With the Head at 1.2040/45 and the Neckline at 1.2400/05, the measured move for this potential reversal would be 1.2760. We will respect this on a daily close above 1.2400/05. Near-term resistance comes in at 1.2400/05, 1.2440/45, and 1.2495/1.2505. Daily support comes in at 1.2310/30, 1.2200/20, and 1.2155/70. Bias: neutral.

- GBPUSD: Like the EURUSD, the GBPUSD has been working on an Inside Day. Accordingly, our outlook from yesterday is unchanged. With the ascending trendline off of the July 12 and July 25 lows holding, our bias is neutral. A daily close below 1.5565/85 (20-DMA, 50-DMA) would be bearish, whereas a close below 1.5490/1.5520 would be very bearish (as it would represent a break of the channel as well as last week’s lows). Daily resistance is 1.5565/85, 1.5600/05 (10-DMA), and 1.5625/40. Near-term support is 1.5490/1.5520 then 1.5450/60 (July 25 low). Bias: neutral.

- USDJPY: A pattern long in the making, the USDJPY Inverse Head & Shoulder formation that has been in wait-and-see mode remains valid so long as the Head at 77.60/70 holds. Indeed, it has, and after the Fed meeting and the July Nonfarm Payrolls last week, the USDJPY is constructive in the neat-term, fundamentally. Accordingly, with the Head at 77.60/70, this suggests a measured move towards 83.60/70 once initiated. Near-term resistance comes in at 79.10/15 (200-DMA). Price action to remain range bound as long as advances are capped by 80.60/70. On the hourly charts, it appears a rounded bottom is forming, and we are thus biased higher for now. 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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