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Daily Observations: August 16, 2012

Daily Observations: August 16, 2012

2012-08-16 15:22:00
Christopher Vecchio, CFA, Senior Strategist
Share:

Current Positions:

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

- Long EURAUD from 1.1680, Stop at 1.1660, Target 1 at 1.1720

- 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 0.8000, Target 1 at 0.7820, Target 2 at 0.7750

- Long USDJPY from 78.72, Stop at 77.60, Target 1 at 79.40, Target 2 at 80.60

Pending Positions:

- Pending Short AUDUSD 1.0535/45

- Pending Long USDJPY daily close >80.65

- Pending Long EURUSD daily close >1.2400/05

- Pending Short EURUSD daily close <1.2200/20

- AUDNZD: Last 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 top that we posited that was forming on the 4-hour charts is close to being confirmed, now that prices have broken below 1.0500; ideally, a daily close below 1.0435/40 (August low) would confirm. At current price, near-term support comes in at 1.0435/45 and 1.0380/85, though with shorter-term timeframes showing exhaustion, we suspect a bounce could be had first. Near-term resistance comes in at 1.0480/1.0500, 1.0535/45 (former swing highs), 1.0580, 1.0600/15 (August high) and 1.0630. Bias: bearish.

- EURAUD: Yesterday I entered a long EURAUD position (as per the morning webinar) at 1.1680, looking for a small bounce given the pair’s descent into oversold RSI territory on the hourly chart and former swing levels on the hourly chart. I am only looking for +40.0-pips here, so this trade, given price action thus far today and current price (1.1704), might be hit sometime this morning. Overall, I like this lower, from a macro-basis; this is merely a scalping play. Bias: bullish.

- EURUSD: More sideways to downside price action in the EURUSD as the pair trickles lower amid thin trading conditions. The rally off of the July 24 low appeared to be corrective in nature, with three waves evident from the bottom (A-B-C correction). However, despite declines from the highs, we suspect that there is some support upcoming, given the ascending trendline off of the July 24 and August 2 lows, as well as former swing lows, at 1.2250/65. Any rally from this area should be sold; it is possible that a rebound here would mark a Bull Flag on the daily chart. Overall, however, we look for one more new low near the 2010 low of 1.1875 before the start of the next major bull leg (towards 1.3000). A drop towards 1.1695-1.1875 remains likely by mid-September. Interim resistance comes in at 1.2310/30, 1.2400/05, and 1.2440/45. Near-term support comes in at 1.2250/65, 1.2155/70, and 1.2130/35. The Inverse Head & Shoulders (Head at 1.2040/45, Neckline at 1.2400/05, Measured Move 1.2750/60) remains a potential outcome. Bias: bearish.

- GBPJPY: The pair traded into critical 123.65/85 resistance yesterday on the 4-hour chart and although a small pullback was experienced, the GBPJPY has rocketed higher today. However, given the confluence of resistance close above (124.60), I think that this trade might be worth sticking with. Accordingly, there is growing bearish RSI divergence on the hourly chart. Stop is open ended as I’m playing this by ear and feeling out the market amid the rapid climb of the USDJPY alongside a relatively steady GBPUSD.

- GBPUSD: The muddle sideways continues, leaving little changed of our outlook for the GBPUSD. Overall, our outlook is little changed from Monday [August 6]. With the ascending trendline off of the July 12 and July 25 lows holding, our bias is neutral. A daily close below 1.5595/1.5600 (50-DMA, short-term channel support) would be bearish, whereas a close below 1.5490/1.5520 (former swing lows) would be very bearish (as it would represent a break of the channel as well as the August lows). Near-term resistance is 1.5700/05 (August high), 1.5715/20 (200-DMA), and 1.5755/70 (July high, 100-DMA). Daily support is 1.5625/40 (10-DMA, 20-DMA) 1.5575/80, 1.5490/1.5520, then 1.5450/60 (July 25 low). Bias: neutral.

- USDJPY: A string of better than expected US data has shifted the fundamental bias of this pair, and indeed, the Rounded Bottom on the hourly charts has materialized a bullish outcome, as expected. This could be the first step towards the USDJPY Inverse Head & Shoulder formation playing out. With the Head at 77.60/70 and the Neckline at 80.60/70, this suggests a measured move towards 83.60/70 once initiated. The daily close above 78.60 yesterday, in our opinion, brings near-term resistance in focus at 79.15/20 (200-DMA). With the pair trading above this level today, a daily close above brings into focus 79.65/70 (100-DMA). Interim support comes in at 78.60 (former swing lows) and 78.10/20 (lows from the past week). 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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