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FX Technical Weekly 07-16

FX Technical Weekly 07-16

2010-07-16 18:19:00
Jamie Saettele, CMT, Sr. Technical Strategist

Euro / US Dollar


Joel: The market continues to surge and has officially closed above the 100-Day SMA for the first time since December of 2009, to potentially warn of a material shift in the construct. Next key levels to watch above come in by 1.3000 and the 1.3090 further up, and given the intensity of the move and close above the 100-Day, we can not rule out the possibility for additional upside towards these levels over the coming sessions. There is no decent support until 1.2700, and a break and close back below this level will be required at a minimum to take the pressure off of the topside.
Jamie: Near term, I expect the EURUSD to work lower to 12870/90 before continuing higher towards 13115/85. Dropping beneath the short term channel support would shift focus to the trendline that connects 12150 and 12520. It is worth noting that daily RSI entered overbought (above 70) territory yesterday.



British Pound / US Dollar


Joel: Any attempts for a bearish resumption have been put on hold with the market being well supported on dips into the 1.5000 area which coincides with both the 20/100-Day SMAs. Nevertheless, we retain a bearish outlook and look for any additional rallies to be capped ahead of 1.5500 on a close basis. Key support now comes in by 1.5235, and a break and close back below this level will help to relieve topside pressures.
Jamie: 5 waves up from the May low are visible so expectations are for a 3 wave correction down to 14950 (4th wave low). 15250-15300 could provide short term support for a bounce in the near term. In the event of a new high, 15530 is resistance.



Australian Dollar / US Dollar


Joel: Despite the recovery in late Thursday trade, the market still managed to take out Wednesday’s low and put in a bearish close. This in conjunction with a failure by the 100-Day SMA could warn that any additional rallies are limited in favor of a major bearish resumption. Market conditions are still highly unpredictable so we would only recommend looking to add to shorts on a break back below 0.8725. Back above 0.8870 negates and gives reason for pause.
Jamie: Recent comments were “since the AUDUSD advance from 8312 is impulsive, I expect weakness over the next several days down to at least 8680. 8570 is also potential support.” The AUDUSD is nearing 8680, which could provide support for a 4th wave low. Dropping below would shift focus to 8570.



New Zealand Dollar / US Dollar


Joel: Although rallies have extended back towards the multi-week range highs at 0.7320, we do not expect the strength to continue and instead favor the prospects for a bearish reversal. Daily studies are starting to look a little stretched and we will look to recommend establishing fresh short positions should the market manage to reverse and close back below 0.7175 . We will also look to fade any rallies beyond 0.7320.
Jamie: After 9 consecutive up days, the NZDUSD has plunged over 2%. The current level, the 200 day SMA, may be support. Additional weakness would encounter support at 6980. The recent top did occur extremely close to the top of a corrective channel, so it is possible that a more important top is in place.



US Dollar / Japanese Yen


Joel: Thursday’s sharp pullbacks have put a serious dent in recovery prospects and the market now looks like it could be attempting to establish below key barriers at 87.00. However, we will retain our bullish bias, unless we see a daily close below 87.00. A break back above 88.50 will now be required to get things moving back to the upside.
Jamie: “To review, everything from the 2009 low appears to be corrective. The 3 wave rally from 8480 is surely corrective, so there is the possibility that the USDJPY continues lower from here and takes out 8480 (which would mean that what was thought to be a b wave triangle would actually be a series of 1st and 2nd waves).” With 8700 being broken, it is wise to abandon the previously held ‘cautiously bullish’ bias. Favor the downside – 8700/60 is resistance.



US Dollar / Canadian Dollar


Joel: The latest rally has stalled out ahead of 1.0700 for now, with the market pulling back to the 1.0300 area thus far. However, our overall outlook remains grossly constructive and we do not see additional setbacks extending much below 1.0300, which coincides with the 100-Day SMA. Instead, we would recommend looking to buy the current dip in anticipation of the next major upside extension beyond 1.0855 over the coming weeks. Ultimately, only a close below 1.0200 gives reason for concern. Thursday’s price action is highly encouraging.
Jamie: The larger C wave rally in the USDCAD should eventually exceed 10866 and risk on longs can be moved up to 10275. An inverse head and shoulders pattern may be forming since the October 2009 low.



US Dollar / Swiss Franc


Joel: The market continues to ignore severely oversold technical studies and has dropped to yet another multi-week low below 1.0435. This now opens the door for additional weakness and puts any hopes of recovery on hold. Next key support comes in by 1.0130, which guards against critical psychological barriers by 1.0000. For now bulls should only get optimistic on a break back above 1.0550.
Jamie: The USDCHF has declined beneath the 61.8% retracement of the advance from 9916 and is nearing the 78.6% level at 10305. It remains possible that the rally from 9916 is the first wave of a longer term bull (diagonal with an extended 5th wave). That would also explain the severity of the decline from 11735. Extended 5th waves are often fully retraced. The former 4th wave extreme at 10430 has now been reached. Daily RSI was recently at its lowest level since November 2007 (the USDCHF bottomed on November 23rd and was 800 pips higher a month later).



Euro / Japanese Yen


Joel: The market now appears to be attempting to carve out a short-term base at a minimum since dropping to fresh 2010 lows by 108.10 in recent trade. However, a break back above 114.15 will be required to take the immediate pressure off of the downside and strengthen the case for a base, while back below 109.00 threatens recovery prospects and opens a retest of the 2010 lows.
Jamie: The EURJPY rally from 10730 consists of overlapping waves and is therefore probably corrective. I wrote Wednesday that “the advance channels in a corrective manner and price has stalled ahead of a June high of 11345. Coming beneath channel support would signal the potential for additional weakness.” The pair has come beneath its channel and focus is on 11090 and then 10915. 11225 is short term resistance.



British Pound / Japanese Yen


Joel: It looks as though a meaningful base has been carved out by 126.75, with the market recovering quite impressively since. The latest pullback off of 136.40 has now been supported ahead of 130.00 and a fresh higher low could be in the process of carving out ahead of the next upside extension beyond 136.40. Only back below 130.00 negates short-term bullish outlook.
Jamie: The rally to 13600 appears to have been a false triangle break. Given the EURJPY position, it is reasonable to expect weakness in the GBPJPY below 13040 in what may be a B or X wave (semantics). 13370 is short term resistance.



Euro / British Pound


Joel: Remains locked in an intense downtrend despite the current recovery rally, with the market as of yet unable to establish above 0.8400. Look for another topside failure by 0.8400 ahead of some renewed weakness and a bearish resumption back towards the yearly lows by 0.8065 over the coming weeks. Only a weekly close back above 0.8400 would negate outlook and give reason for concern.
Jamie: I still maintain that the larger EURGBP trend is down towards 7600-7700 (October 2008 low and Fibonacci extension). However, the break above 8430 suggests that the pair is headed to the next resistance level of 8600 (former support) before heading lower.




Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.   Send requests to receive his reports via email to jsaettele@dailyfx.com.

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