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Daily Observations: August 10, 2012

Daily Observations: August 10, 2012

2012-08-10 13:59:00
Christopher Vecchio, CFA, Senior Strategist
Share:

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 0.7942, Target 1 at 0.7750

- Long USDJPY from 78.22 (1/2), Stop at 77.60, Target 1 HIT at 78.60 (Closed for +38-pips), 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

- Pending Short EURUSD daily close <1.2200/20

- AUDNZD: Tuesday I wrote: “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.” Indeed, a move higher as transpired before Target 1 was hit; we nonetheless remain short as 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 pair’s exhaustion above 1.0600 (failure to see a daily close above said level) has stoked a pullback, and with a fundamental catalyst (Chinese worries), near-term price action is biased lower. Worth noting: the 4-hour RSI broke below 50 today and is at its lowest level since July 25); this suggests that the bullish momentum is waning. Near-term resistance comes in at 1.0535/45 (former swing highs), 1.0580, 1.0600/15 and 1.0630. Given current price, support comes in at 1.0480/1.0500 (weekly low), 1.0435/45, and 1.0380/85. Bias: bearish.

- EURUSD: The EURUSD continues to creep lower, as anticipated, given the lack of a fundamental catalyst to suggest that further gains are likely (this being the announcement or update on progress of a major bond buying program; or the Federal Reserve suggesting a third round of quantitative easing is closer). A break of 1.2310/30 today suggests the next level lower of buying interest isn’t until 1.2200/20 (former swing levels, ascending trendline off of July 24 and August 2 lows). Nevertheless, there remains scope for a bullish outcome, for the time being. The recent failure above 1.2400 is critical, 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. A break of 1.2200/20 takes this formation off the table temporarily. Near-term resistance comes in at 1.2310/30, 1.2400/05, and 1.2440/45. Daily support comes in at 1.2200/20 and 1.2155/70. Bias: bearish.

- GBPUSD: The muddle sideways continues, leaving little changed of our outlook for the GBPUSD. Overall, our outlook unchanged from Monday. With the ascending trendline off of the July 12 and July 25 lows holding, our bias is neutral. A daily close below 1.5580/85 (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 1.5615/20 (10-DMA), and 1.5625/40. Near-term support is 1.5575/80, 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 79.15/20 (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 (yesterday was the highest exchange rate since July 20), 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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