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Daily Observations: October 4, 2012

Daily Observations: October 4, 2012

Christopher Vecchio, CFA, Senior Strategist

Current Positions:

- Long AUDUSD from 1.0224, Stop at 1.0160, Target 1 at 1.0330, Target 2 at 1.0600

- Long NZDUSD from 0.8195, Stop at 0.8170, Target 1 at 0.8300

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

Pending Positions:

- Pending Long USDJPY daily close >80.65

- AUDUSD: After setting fresh October lows early in trade on Thursday, the pair has rebounded and is working on a Doji candlestick now, a sign of indecision, and after a major downturn, perhaps a signal for a short-term correction. The levels noted yesterday hold: “Resistance comes in at 1.0275, 1.0330, 1.0405/25 (mid-August swing lows), and 1.0470/85 (former intraday swing levels). Support comes in at 1.0160/75 (mid-July and early-September swing levels), 1.0100/10, and 1.0000.” Bias: bullish above 1.0160/75.

- EURUSD: More consolidation and drift higher has kept our outlook unchanged. Yesterday we noted that “[as long as the 200-DMA holds], we look towards the 61.8% Fibo retracement (February 2012 high to the July 2012 low) at 1.2934 again.” Indeed, this is playing out, with the pair moving back towards the weekly highs at 1.2965/70. Resistance lays there, 1.3000, 1.3145, and 1.3165/75 (September high). Support comes in at 1.2915/20 (5-EMA), 1.2870/75 (20-EMA), and 1.2820/30 (200-DMA, late-April swing high). Bias: bullish above 1.2830.

- GBPUSD: The GBPUSD closed below major support yesterday, 1.6100/20 (20-EMA, descending trendline off of April 2011 and August 2011 highs, ascending trendline off of August 2 and August 31 lows), though there’s been no follow through thus far today. As noted yesterday, “A break below suggests a move to 1.5970/75 (former channel resistance off of June 20 and August 23 highs), and 1.5770/85 (late-August swing lows. Resistance comes in at 1.6165/80 (late-September and early-October intraday swing levels), 1.6260 (the former April swing highs by close) and 1.6300 (by high).” Bias: bullish above 1.6100/20.

- USDJPY: Yesterday I said “We’re back to 78.10/20, and a daily close above eyes resistance at 78.40/60 (50-EMA), 78.80/90 (100-DMA, descending trendline off of the April 20 and June 25 highs), and 79.20/30 (200-DMA, September high). Should price close at or below 78.10/20, support comes in at 77.90, 77.40/45 (September 28 low), 77.65/70 (June 1 low) 77.45/50, and 77.10/15 (September low).” Today the USDJPY has held in the 78.40/60 zone, a level that was pivotal in August. With descending TL resistance overhead, further upside price action is likely capped. Bias: bearish.

- SPX500: The SPX500 remains in a very gradual uptrend off of the June 1 low, and more recently has found itself trading in a tighter ascending channel the past ten-weeks. Since early-August, the 20-EMA has been strong support, with no two consecutive closes below occurring. We also note that over this time frame the daily RSI has not moved below 50. The SPX500’s resilience in the face of a stronger US Dollar leads me to believe that another run at the highs is around the corner. Resistance comes in at 1458/60, 1475, and 1498/1504. Support comes in at 1443/45 (20-EMA), 1425 (the 61.8% Fibo retracement on June 2012 low to September 2012 high), 1420/22 (50-EMA).

- GOLD: Gold’s consolidation the past few weeks has been necessary from a technical perspective, in order to clear out some of the short-term congestion faced given overbought conditions. It is important to consider that the sharp ascending trendline off of the August 15 and August 31 lows has held, now reinforced by the 20-EMA at 1750/55, also former intraday swing lows throughout mid-September. However, the sharp uptrend has brought Gold into the very important 1785/1805 zone, where former highs were set in November 2011 and February 2012. If this resistance breaks, a move to 1840 shouldn’t be ruled out. Another failure at 1785/1805 would likely result in a pullback to 1750/55. Bias: bullish above 1750/55.

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

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