Technical Outlook of Key Markets to Watch Over Coming Sessions
- EUR/USD could stall out above 1.3300; look to sell
- Yen crosses well overbought on daily charts; look to sell
- EUR/CHF could be poised for major upside break; look to buy
- EUR/AUD in the process of completing major base; look to buy
- US equities look like they may be topping out in 2012
Fundamentally, things have been quiet over the past 24 hours and because of this we will instead take the time to focus on the technical picture today. The following are some of the markets that could be worth watching over the coming days:
EUR/USD: Has been very well bid since basing out by 1.3000 last week and the market is now testing some key resistance in the 1.3300 area. This market has been locked in a choppy consolidation since late January and there is solid internal resistance just over 1.3300. As such, we would be on the lookout for a potential bearish reversal if the market trades above 1.3300 and towards 1.3350. Ideally, selling rallies to 1.3330 on Wednesday would be a sensible trade.
EUR/JPY & GBP/JPY: These Yen crosses (EUR/JPY shown above) have been on fire over the past several days to leave daily studies well overbought and begging for some form of short-term corrective relief. While the medium and longer-term outlook is now looking more constructive, we still feel that there could be shorter-term risks for a decent pullback before the market considers any additional meaningful gains. As such, we would be looking to sell EUR/JPY and GBP/JPY on rallies to the October 31 intervention highs by 111.55. Once EUR/JPY tests 111.55, traders can also look to sell GBP/JPY. We would however recommend against selling both given the strong correlation. As such, pick one or the other depending on level of comfort or preference.
EUR/CHF: Although not a lot has happened here with the market predominantly confined to a very tight range in the mid-1.2000’s, it is very difficult to ignore the potential for a pickup in volatility and surge to the upside with the broader outlook looking constructive since the market based out by record lows back in the summer of 2011. We will not pretend to ignore the fundamental aspect of this trade with the SNB committed to aggressively defending the 1.2000 level, and as such, we recommend looking to buy the cross on a break above the current weekly high at the 1.2075 level. Stops should be placed on a daily close below 1.2000.
EUR/AUD: This is a market that is finally showing signs of the formation of a legitimate longer-term base following the recent break back above 1.2620. The cross has been locked in a very intense downtrend over the past few years, with the market dropping off dramatically from the 2.1000 area all the way down towards record lows just shy of 1.2000 before finally bouncing. At this point we see room for an acceleration of gains, and would be looking for a push back towards 1.4000 over the coming weeks. Initially, look for a test of next key resistance by 1.3000. Only back under 1.2300 would delay outlook.
US Equities: The major US markets (S&P futures above) are showing signs of a top and with daily studies also looking overbought, we see risks for a sizable pullback over the coming days. Both the S&P and DJIA managed to break back below Monday’s respective lows and this ends a sequence of consecutive daily higher lows which could very well act as the necessary catalyst for the anticipated reversal. We would recommend waiting for confirmation and a break back below Tuesday’s low on Wednesday before establishing the short position. Stops should then be placed above the 2012 highs.
--- Written by Joel Kruger, Technical Currency Strategist
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