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Daily Observations: September 7, 2012

Daily Observations: September 7, 2012

Christopher Vecchio, CFA, Senior Strategist

Current Positions:

- Short AUDUSD from 1.0380, Stop at 1.0420, Target 1 at 1.0240, Target 2 at 1.0170

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

- 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

- AUDUSD: The AUDUSD is back on the rebound following Chinese infrastructure stimulus measures, definitively breaking the steep descending channel off of the August 22 high and trading back into its former channel off of the August 9 high. Accordingly, topside resistance comes in at 1.0350/55 (20-DMA), 1.0370/80 (channel resistance) and 1.0410/20 (mid-August swing lows). A breakdown eyes 1.0275/1.0300, 1.0210/25, and 1.0160/75 (weekly low). Bias: bearish.

- EURUSD: The EURUSD has threatening a major breakout today, pushing through formerly yearly lows at 1.2625/30 and the descending trendline off of the August 2011 and October 2011 highs. While this would buck the yearlong downtrend that has been in play up to 1.2740/50 (just below the measured 1.2760 target off of the Inverse Head & Shoulders), there could be some profit taking soon for a small pullback. Overall, with price supported by 1.2440/45, our outlook remains bullish, and a shift in our medium-term bias would be necessary if price closes above 1.2670 today. Near-term resistance comes in at 1.2740/50 (mid-June swing highs), 1.2820/25 (late-May swing highs), and 1.2980/1.3000. Support comes in at 1.2625/30 (former yearly lows), 1.2500/10, and 1.2460/80. Bias: bullish.

- GBPUSD: The GBPUSD finally cracked through topside channel resistance at 1.5900/05 yesterday, but thus far has struggled to produce meaningful gains higher. With an Inverted Hammer forming on the daily chart, there is evidence to believe that a false breakout may have formed. If price fails to eclipse 1.5910 on the close today, there is scope for a pullback towards 1.5770/90. However, a weekly close above said level gives reason to believe that a run up to 1.6120/40 is possible during September. Bias: bullish above 1.5770/90.

- USDJPY: Strong jobs data and some relief in the Euro-zone crisis has helped spur the USDJPY higher, with price closing back above the key 78.60 level yesterday. Now, there is scope for gains into 79.20/30, confluence of the 100-DMA, 200-DMA, and the descending trendline of off the April 20 and June 25 highs. Accordingly, a break of this downtrend is contingent upon strong US labor market data today in the form of the US Nonfarm Payrolls report. A daily close below 78.60 suggests a move towards 78.10/20 at the minimum (a level of demand this week as well as through early-August). 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

Follow him on Twitter at @CVecchioFX

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