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Daily Observations: August 24, 2012

Daily Observations: August 24, 2012

Christopher Vecchio, CFA, Senior Strategist

Current Positions:

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

- Long EURUSD (1/4) from 1.2469, Stop at daily close <1.2405, Target 1 at 1.2680, Target 2 at 1.2760

- Long USDJPY from 78.58, Target 1 at 79.60, Target 2 at 80.60/65

Pending Positions:

- Pending Long USDJPY daily close >80.65

- Pending Short EURUSD daily close <1.2200/20

- AUDUSD: Rejection at the key 1.0530/45 zone signaled further losses yesterday, and the sharp reversal has the AUDUSD threatening a major breakdown in the coming days. Daily support at 1.0400/20 was broken, bringing into focus 1.0380/85; a break and daily close below this level signals losses into channel support (off of the August 9 high) at 1.0330. Near-term resistance comes in at 1.0400/20 (channel support dating back to June, 200-SMA on 4-hour chart), 1.0460/80, 1.0530/45 (former swing highs), and 1.0600/15 (August high). 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 1.0200/05 (100-DMA). Bias: bearish.

- EURUSD: The EURUSD’s gains continue, as anticipated, at least on a technical basis, and have been aided by the Federal Reserve’s more dovish than anticipated Minutes. Nevertheless, gains should persist, though we have slightly altered our outlook: while the ascending channel off of the July 24 and August 2 lows remain, it is possible that it a Wedge has formed. Resistance was hit yesterday at 1.2560 (a level noted on Wednesday for the first time), and a daily close above said level will be necessary for further gains. Similarly, the Inverse Head & Shoulders pattern off of the low is in play. Given the Head at 1.2040/45, this would draw into focus 1.2760 as long as price holds above 1.2405. Interim resistance comes in at 1.2560, 1.2615/20 (channel resistance, 100-DMA), and 1.2680 (long-term descending channel resistance). Near-term support comes in at 1.2500, 1.2440/45 (former swing highs), 1.2405 (Neckline), 1.2310/30, 1.2250/65, and 1.2155/70. Bias: cautiously bullish.

- GBPUSD: Wednesday I wrote “Resistance has broken in the short-term channel at 1.5770, opening up room for a run towards 1.5880/1.5900.” Indeed, this was the case, with failure coming at said level yesterday; a pullback has materialized today as well. Our key levels for the near-term are 1.5880/1.5900 to the upside and 1.5770 to the downside; we are also becoming overextended on shorter-term charts, suggesting that another failure at 1.5900 could lead to profit taking before further bullish price action. A daily close below 1.5770 should lead to a drop into 1.5700/20. Beyond that, support comes in at 1.5635/40 (last week’s low), and 1.5625 (ascending trendline support off of August 6 and August 10 lows). Bias: bullish above 1.5770.

- USDJPY: The USDJPY is right back where it was last week, slightly lower than expected, given the short-term technical congestion that materialized near the 100-DMA on Tuesday. Nevertheless, the key level today is 78.60, former June swing lows and a level of resistance during most of July. A weekly close below 78.60 today puts 78.10/20 (former lows) in focus. A weekly close above said level gives scope towards 79.10/20. 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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