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Daily Observations: August 21, 2012

Daily Observations: August 21, 2012

2012-08-21 13:14:00
Christopher Vecchio, CFA, Senior Strategist
Share:

Current Positions:

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

- Short AUDUSD from 1.0510, Stop open ended, Target 1 open ended

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

- Short GBPJPY from 124.50, Stop at 125.80, Target 1 123.85, Target 2 at 121.50

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: Given recent price action, we must alter our perspective for the near-term. Although a top appeared to have formed on the 4-hour chart, dating back to late-July given the break of August lows intramonth (thus suggesting a reversal), we now caution that perhaps a Bull Flag has formed off of the August 9 high at 1.0613. The key bull/bear level for today is 1.0485/95: a close above should lead to gains back into 1.0600 while failure should lead to a pullback towards 1.0400/10. At current price, daily support comes in at 1.0480/1.0500, 1.0435/45 and 1.0380/85, though with shorter-term timeframes showing exhaustion, we suspect a bounce could be had first. Interim resistance comes in at 1.0535/45 (former swing highs), 1.0580, 1.0600/15 (August high) and 1.0630. Should we see a rally up towards 1.0600 again, another failure would market a Double Top and signal a push for a test of 1.0195/1.0200 (100-DMA). Bias: bearish.

- EURUSD: The bounce off of the range low has materialized, and key levels to the upside are being tested amid the swirling rumors; indeed, we could very-well be seeing the beginning of a bullish move towards 1.2760. For now, we’re watching 1.2405 in the EURUSD, the potential Neckline on what could be an Inverse Head & Shoulders bottoming pattern. Given the Head at 1.2040/45, this would draw into focus 1.2760 on a daily close above 1.2405. Near-term support comes in at 1.2310/30, 1.2250/65, and 1.2155/70. Bias: neutral, could shift to bullish today.

- GBPUSD: Although the sideways price action has continued, the GBPUSD is now back at the top of a short-term channel, pressing resistance at 1.5465/70. And despite the very thin trading conditions, at least based on levels, this would be a significant move to the upside. The pair is threatening to close above its 100-DMA and 200-DMA for the first time since mid-May; and a close above 1.5770 would suggest a breakout for a move towards 1.5880/1.5900. Near-term support comes in at 1.5685/90 (10-DMA), 1.5635/40 (last week’s low), and 1.5625 (ascending trendline support off of August 6 and August 10 lows). Bias: neutral, could shift to bullish today.

- 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 79.15/20 (200-DMA) yesterday, in our opinion, brings near-term resistance in focus at 79.60/65 (100-DMA), which is also where the pair topped out today. We suspect that the pair may still be overbought on shorter-term time frames and a pullback may be warranted before further bullish movements. Interim support comes in at 79.15/20, 78.60 (former swing lows) and 78.10/20 (lows from last 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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