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Daily Observations: August 28, 2012

Daily Observations: August 28, 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: The AUDUSD traded to new lows overnight but has since rebounded, while respecting descending channel support as well as the 100% Fibonacci extension at 1.0342 (price did not quite touch in the overnight. With budding bullish RSI divergence on the hourly chart, it appears that a bounce could be nearing. This fits neatly with the wave count from the August 9 top, which is suggesting that price has just completed subwave 1 of wave 3 in the encompassing structure. Near-term resistance comes in at 1.0440/50 (channel support dating back to June, 200-SMA on 4-hour chart), 1.0480, 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: Little has changed over the past several days although the EURUSD maybe working on a Bull Flag within its ascending channel/wedge off of the July 24 low, as well as within an Inverse Head & Shoulders pattern in the works since late-June. 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 1.2660/70 (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: Further consolidation and pullback on the 4-hour chart but some significant divergence is building, and it looks bullish. Whereas RSI dropped to 36.58 yesterday on the 4-hour chart, the last time RSI was this low, the GBPUSD traded in the 1.5500s. Likewise, last time price was at this level (1.5793), the RSI was at 71.59. Through and through, this is a bullish development. 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). A daily close above 1.5900 points towards 1.5985. Bias: bullish above 1.5770.

- USDJPY: The USDJPY has fallen back today, down to 78.55 at the time this report was written, and is now threatening to close below crucial 78.60 support. This level coincides with former June swing lows and a level of resistance for most of July (note the daily wicks above said level but no closes). For now, this is the most important level: potential exists for a rally back into 79.10/20 as long as 78.60 holds, whereas a daily close below suggests a move towards 78.10/20 at the minimum. Penetration of the August low at 77.90 will likely result in a washout to new lows with the potential for 77.65/70 and 77.30. 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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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