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Daily Observations: September 20, 2012

Daily Observations: September 20, 2012

Christopher Vecchio, CFA, Senior Strategist

Current Positions:

- Long AUDUSD from net 1.0454 (1.0525, 1.0455, 1.0421, 1.0435), Stop at 1.0395, Target 1 at 1.0615, Target 2 at 1.0670, Target 3 at 1.0800

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

- Long EURUSD from 1.2935, Stop at Breakeven, Target 1.3145, Target 2 1.3300

- Long USDJPY from 77.92 (1/2), Stop at 77.92, Target 1 at 79.10/30, Target 2 at 80.60/65

Pending Positions:

- Pending Long USDJPY daily close >80.65

- AUDUSD: Despite the spike to the 50-DMA (1.0375) today, the pair has rebounded back to the classic support noted yesterday – at former resistance. The descending trendline off of the August 9 and August 23 highs has kept the pair supported the past three-days, and as noted “with the 20-DMA overlapping at 1.0415/20, a base could be building for the next move higher.” As long as this level holds today – despite the intraday spike lower – we continue to look higher. Near-term resistance comes in at 1.0410/20 (descending trendline off of the August 9 and August 23 highs, 20-DMA, mid-August swing lows), 1.0480/85, 1.0550/60, and 1.0615/30 (August high). Support comes in at 1.0325 (200-DMA), and 1.0250/70. Bias: bullish above 1.0250/70.

- EURUSD: The pullback off of the 76.4% Fibonacci retracement (February 2012 high to the July 2012 low) at 1.3145 appears to have run its course in the short-term, with the EURUSD trading back to the 61.8% Fibo retracement at 1.2934 today, off of which price has rebounded. Although the daily RSI has exited overbought territory, we note that the 4-hour RSI is close to oversold with some significant diverging (given the relationship between price and RSI the last time the 4-hour RSI was at this level). Interim resistance lies at 1.3000 (5-EMA), 1.3145, 1.3165/70, and 1.3240. As noted previously, “It is possible that a long-term bottom is now in at the 1.2040/45 low set in late-July.” We’d like to expand this view by noting that a Double Bottom on the June 2010 and July 2014 lows – within 150-pips of one another – could be forming. Near-term support comes in at 1.2930/35 and 1.2820/30 (200-DMA, late-April swing high). Bias: bullish above 1.2935.

- GBPUSD: The pair has pulled back to the key 5-EMA at 1.6196 (for an indication of short-term strength) and the gap between the 5-EMA and the 20-DMA has started to turn lower, suggesting a compression of price is occurring. If the 5-EMA holds, we’re looking for further rallies; if not, support is close by. The key 1.6120/40 level, broken on Friday, remains our guide for bullish/bearish price action. As long as the GBPUSD closes above said level this week, the door is open for a move towards 1.6400 by the end of the month. The former April swing highs at 1.6260 (by close), 1.6300 (by high) are in focus, now that the descending trendline off of the April 2011 and August 2011 highs broke last week. Below 1.6120/40 support comes in at 1.6030/35 (20-DMA), 1.5970 (ascending trendline off of August 2 and August 31 lows, former channel resistance off of June 20 and August 23 highs), and 1.5770/85 (late-August swing lows). Bias: bullish above 1.6140.

- USDJPY: The USDJPY has pulled back as key resistance alongside a general feeling of disappointment on the BoJ’s newest stimulus measures has created the ideal sell-off situation. With price below 78.60, our focus lies in the 78.10/20 region. A close above 78.10/20 leaves open the possibility for a rebound to 78.60 and 79.10/30 (100-DMA, 200-DMA, descending trendline off of the April 20 and June 25 highs). A close below 78.10/20 suggests 77.90, 77.65/70 (June 1 low), 77.45/50, and 77.10/15 (September low). Bias: bearish.

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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